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Relaxed Standards for Credit Cards Mean New Offers for Consumers

4 min read

If your mailbox at home or at your business has been filling up with credit card offers, you aren’t alone.

Experts say the stepped-up marketing of credit cards, especially by the big players, signals the end of the most generous offers, which were being made to the most credit-worthy borrowers as credit card issuers continue to rebuild the business that was damaged during the recession.

For rank-and-file consumers, especially those who don’t carry balances, the terms can still be very favorable. But the growing popularity of cash-back cards can be a costly aggravation for merchants who may pay higher fees for the privilege of taking credit cards only to have a portion of the fees refunded back to buyers.

“There’s no doubt they are getting more aggressive when it comes to marketing, especially direct mail,” said Curtis Arnold, the Arkansan who founded CardRatings.com and the new BestPrepaidDebitCards.com.

But the offers, particularly the big signing bonuses that were being offered last year, are settling back down. They’re now being marketed to consumers whose credit scores may not be stratospheric, agreed Arnold and Anisha Sekar, vice president of credit and debit products for NerdWallet.com.

After the financial crisis, banks “really tightened” their underwriting standards for credit cards, Sekar said.

(Tim Chen, founder of NerdWallet, has reported that credit card issuers were writing off more than 10 percent of outstanding balances during 2010.) For those with stellar credit scores, issuers were making stellar offers.

“Pretty amazing bonuses last year — 100,000 point bonuses,” Sekar said. “And we used to see these amazing cash deals that are just not around anymore.”

“There are a few more strings with the current bonus reward offers,” Arnold said. “The intent is to get you to engage with that card.”

For instance, cash-back reward cards typically offer 1 percent rebates on all purchases, but some — Chase, Bank of America and others — are encouraging the use of credit cards on purchases that consumers used to think of as routine cash expenses, like gasoline and groceries.

Those kinds of purchases may now generate higher rebates — 3 percent or 5 percent — for a three-month period or for a limited amount of purchases.

Issuers also keep trying to steal debt from each other, the experts said. And balance transfers with generous interest-free periods are still available.

However, Arnold said, transfer fees are back; no-fee balance transfers are rare.

‘The Game’

For the consumer, reward cards are a clear winner, Arnold said.

“You have to match your spending with the card to get the most bang for your buck on rebates,” he said. “It is a bit gimmicky, but I’m here to tell you that it works. And it isn’t chump change. It’s worth the effort to get several hundred dollars in cash back for a few minutes of your time.”

Arnold, who has six kids and is contemplating adopting a seventh, said his household averages rebates of about 1.5 percent on credit card spending. And that has added up to more than $1,000 in rebates in the first half of the year.

But for the merchants, Arnold ac-knowledged, reward cards can command higher transaction fees, cutting into profits or forcing increases in prices, only to have the excess split between the credit card network, the issuer and the customer.

“The merchants say this is raising the price of doing business. I can see that,” he said. “But the reality is that when debit card fees were capped, did we see the price go down on goods and services?”

If credit card fees were suddenly capped, he said, “I think most merchants would just pocket the difference.”

Nor, he said, do merchants seem willing to reject plastic in order to avoid the fees — although he said he did see one small retailer who had posted a sign that said, “Please, No Rewards Cards.” Instead, accepting plastic is moving down to the very smallest retailers who are using gizmos like “The Square” to accept plastic for a predictable cut of the revenue.

“The merchants, like anyone else, hate paying the fees, but there’s no doubt — and there have been studies on this — that plastic increases spending in most industries,” Arnold said.

“The game,” as Arnold called it, “is not going to change anytime soon. And while the game is there, I’m going to play the game, and I’m going to play it to win.”

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