Credit Card Fees Are Making a Comeback

CU360
July 27, 2009 | COMMENTS

U.S. households are receiving far fewer offers for credit cards these days and, increasingly, the offers they do receive are for cards carrying an annual fee, according to Mail Monitor, a direct mail tracking service from research firm Synovate.

During the first quarter of 2009, U.S. households received 372.4 million offers, representing a dramatic 67% drop from the 1131.6 million offers received during the first quarter of 2008. Twenty-seven percent of offers carried an annual fee during the first quarter 2009, up from 18% one year ago.

“As issuers continue to cut back offers and the mailbox becomes more super-prime, we're seeing a proportionately higher number of card offers with an annual fee,” said Andrew Davidson, vice president for Synovate's financial services group.

Fee-based cards now reflect an increasing proportion of both reward/rebate and non-reward/rebate card solicitations. In first quarter 2009, 24% of reward/rebate offers carried an annual fee, versus 18% in a year earlier. At the same time, 42% of non-reward/rebate offers carried an annual fee, versus 19% the year before.

“Many issuers have scaled back significantly and some have been relying more on proven co-branded airline programs, which typically carry an annual fee. At the same time, the mass exodus from the subprime space means issuers with fee-based models are becoming more dominant in the category,” said Davidson. “There's a great deal of speculation as to what the credit card industry will look like once the Credit Cardholders Bill of Rights takes effect, but while the majority of offers continue to carry no fees, we may already be moving in the direction of a fee-based model.”

Cardholders that currently own a fee-based card typically own multiple cards but have just one fee-based card in their wallet, according to Mail Monitor. The fee-based card is also the card that tends to be used most often.

“If this trend continues, the battle for share of wallet will intensify,” predicted Davidson. “In a fee-based environment, consumers will be more likely to own just one or two credit cards and will not have the appetite for the level of multiple card ownership that has fuelled the growth of the industry in recent years.”