Credit Card Fees Are Up, But Then So Are Rewards

Credit card interest rates rose, as did how lucrative initial rewards bonuses were, during the first three months of this year compared with the same period in 2013, suggesting both issuer and consumer credit confidence is high. The Target and Neiman Marcus breaches, however, may have quelled some of the potential growth in card use, as fraud and billing issues represented cardholders’ biggest complaint, a new report suggests.

According to CardHub.com, which recently released its “Q1 2014 Credit Card Landscape Report,” credit card interest rates were higher across the board during the first quarter year over year, rising an average of 2.12 percent. Secured credit cards and credit cards for consumers with fair credit were the only segments that saw rates fall relative to the fourth quarter of 2013. The average card interest rate during the quarter for excellent credit was 12.86 percent, up from 12.79 percent a year earlier, while the average for fair credit was 21.07 percent, up from 20.07 percent.

If anything, interest rates are starting to stabilize, a signal that they are starting to plateau, Odysseas Papadimitriou, CardHub.com CEO, told PYMNTS.com in an interview. Unstable market conditions have issuers today in a “wait-and-see” mode versus making terms any better, he added.

“Delinquency rates and charge-off rates already are at historic lows, and that signals to credit card executives that they will go up,” he said. “And if they go up, terms won’t improve.”

As such, Papadimitriou said, consumers looking for the best credit card deals should act now because terms likely won’t get much better. “It’s just a very favorable environment for consumers, whether they have debt or are looking for rewards,” he said.

Indeed, balance-transfer offers continued to improve, with the length of the average zero-percent introductory term rising 4.47 percent year over year, to 10.75 months. However, balance transfers tend to be a seasonal attraction that provides the best deals during the first and fourth quarters of the year.  As a result, introductory periods on balance transfers should shorten over the next six months, the report notes.

Initial rewards bonuses are also becoming more lucrative, with the value of the average cash and points/miles-based bonuses increasing 15.5% and 10.04 percent, respectively, on a year-over-year basis, according to the report. This may reflect consumer interest in spring and summer travel. Indeed, points and miles-based rewards bonuses are at an all-time high in terms of value.

In terms of fees, the average cash-advance fee increased to $12.31, up 12.94 percent from a year earlier and up 10 percent from just the previous quarter. “That’s happening because credit card companies can get away with that,” Papadimitriou said, noting how the CARD Act helped put an end to other rising card fees, but not cash-advance charges, which consumers tend not to check when evaluating cards. “It doesn’t hurt their ability to solicit cardholders.”

The two most common types of consumer complaints during the first quarter of 2014 were billing issues and fraud, which the report attributes in part to the security breaches at Target and Neiman Marcus. The CardHub report, citing the Consumer Financial Protection Bureau, said the number of complaints regarding Identity theft/fraud/embezzlement increased roughly 61% during the quarter from a year earlier.

However, complaints regarding credit card debt protection and the debt payoff process fell 12% and 34%, respectively. Part of the reason is likely the federal crackdown that has led to at least five banks ending controversial credit card marketing practices and striking penalty deals with the Consumer Financial Protection Bureau.