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Credit Card Issuers Changing the Rules

Lenders look to make money before new regulations take effect

December 24, 2008

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Those tough new rules for credit card companies don't go into effect for a year and a half and the companies appear to be taking advantage of that gap to make money while they still can. So don't toss that letter from your credit card company that looks like junk mail, because it might contain important changes to your account.

Mintel Comperemedia, a provider of direct marketing competitive intelligence, reports that many credit card issuers are communicating big changes in account terms, conditions and fees to their clients through direct mail.

"In recent months, we've seen many marketing direct mail pieces inform cardholders of new, notable changes to their accounts," said Stephen Clifford, VP of Financial Services for Mintel Comperemedia. "With no clear end in sight for the recession and other economic troubles, many companies are altering the terms of their products and services so they can stay profitable, protect their assets and reduce their risks."

Mintel has seen some credit card issuers use direct marketing to inform cardholders that their accounts have been closed due to inactivity. Closing accounts that aren't being used can benefit card issuers by reducing their total risk.

Another way credit card issuers reduce risk is by decreasing credit lines on active cards. In a mailing that communicates such a decrease, Citibank lowered a cardholder's credit line based on spending history and the fact that he or she was "only using a small portion of the available credit."

Clifford notes that, "tightening someone's credit line can be a double-edged sword for both issuer and cardholder. It reduces the risk that the cardholder will take on too much debt, but it also decreases that person's total purchasing power."

Leading credit card companies are also adjusting fees and interest rates on existing accounts to improve profitability during difficult times. Mintel saw both Chase and Capital One Bank, for example, sent letters to cardholders about increased fees and new fee-calculation methods. Other issuers, including Bank of America, Discover, Wells Fargo and GE Money Bank, have used direct marketing to alert customers to changes in their cards' interest rates.

The Federal Reserve approved new rules that will prohibit credit card companies from raising interest rates on existing balances unless a payment is more than 30 days late. But those changes won't go into effect until July 2010. Clifford expects card issuers to actively adjust rates and fees throughout 2009 in anticipation of the new regulations.

"We'll see continued marketing direct mail communication of new account terms and conditions during 2009. We may even see issuers scale back on benefits and perks like rewards programs," he said.

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