Credit Card Industry Feels the Pinch

Credit cards were assumed to be doing pretty well in this credit crunch. Consumers were defaulting on their mortgages but still keeping those credit card payments on track. But the latest issue of industry journal, The Nilson Report, paints a different picture:

Credit Card Profits Decline at Most Top U.S. Issuers in 2007 vs. 2006

It's a 15.6% net income decline for the top 10 most profitable credit card companies, in fact. A pretty major drop.  Only Capital One, US Bancorp and Target had profit increases. At the same time, the contribution of credit cards to their parent banks increased. The article cites Citigroup, where the net income for card business fell 26% and still contributed 79% of the company's total (up from 18% the previous year).

It's not clear exactly where the decline comes from. The article cites increased credit card loan losses. There is also tightening in the secondary markets for credit card balances in the same way there has been for mortgages.

What does this mean for you? Watch out for rising fees and rates. All those APR hikes, credit limit reductions and fee increases make sense when you see these credit card industry numbers. As the credit crunch gets worse your credit card could get a lot more expensive.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Comments

[Jim]

Their profits going down means their operating costs have to go up. I have noticed they switched indexes from PRIME to LIBOR in order to drum up higher APRs. I'm on track to pay off my cards and free up my own income so I don't need to use them.