Ever since the credit crunch began in 2008, banks have scaled back their credit card deals substantially. Previously, balance transfers for periods of 12 to 18 months were considered the norm, but today, they are for much shorter amounts of time. Despite the fact that the Federal Reserve is keeping interest rates at historically low levels, the APRs on credit cards have risen quite a bit over the past couple years. Furthermore, reward programs have been watered down and many banks are tacking on annual fees. In a nutshell, credit card deals just aren’t what they used to be… but does that mean they are gone for good?
Unfortunately, there is evidence to suggest that “the best” may be behind us, and it’s possible we may never see those credit card deals we became accustomed to before the recession. Not only is this due to changing perceptions of the economy, but also because of the fact that new laws are in place which make it less lucrative for banks to offer these types of incentives.
For example, the Credit Card Reform Act makes it nearly impossible for banks to raise a cardholder’s APR during the first year. Previously, banks would often cancel the promo rate if a customer was late on a payment… but now they can’t do that. Naturally, this means banks aren’t able to make as much money off of those whom carry a balance (even if they are high risk borrowers) and in turn, they aren’t being nearly as generous with balance transfer offers.
The other big change consumers have seen lately is with their reward programs. It used to be that the best credit card deals would give you 5% cash back on various categories of spending. Credit card companies would actually lose money on those reward programs, but what made them possible is that those who carried a balance would subsidize those costs (in the form of interest payments). However, now that banks aren’t able to jack up the APR so easily, the drawback is that they are trimming back on those generous reward programs.
Of course overall, the Credit Card Reform was a win for consumers, but unfortunately it also means that many of the deals we were used to may never return.
This guest post was written by Ryan from CreditCardForum.com, where he regularly blogs about the best credit card deals, as well as other news related to personal finance.