The national average interest rate slipped 0.1% recently, making it the second consecutive weekly decrease since early December.
But these rate movements were largely due to two credit cards: a few weeks ago, First Premier shaved 10% off its infamous 59.9% APR card, and this week, Barclays’ U.S. Airways Premier World MasterCard dropped 0.75% as it plays around with different interest rates.
But as Marketplace Money from American Public Media announced, Bank of America publicly announced that it had lowered rates for around one million customers in February.
According to Bill Hardekopf, CEO of LowCards.com, the decline comes from people with good credit scores that slipped up just a little – a missed payment here, a late one there – but got back on track in the last few months.
Hardekopf says that these customers saw their rates as much as double because of missteps before the CARD Act, but have cleaned up their credit score and can now see their rates return to normal.
Still, though, one million customers is not a lot: about 2% of Bank of America’s customers.
And while the rates for the good kids go down, they rise for folks with bad or limited credit.
High-risk interest rates are up 3% over six months ago, and banks have levied new fees on higher-risk customers and some checking account holders (like Bank of America’s new $59 annual fee).
According to Ron Shevlin, analyst for the Aite Group, argues that the rate cuts are part of a competition to retain banks’ most valuable customers: those who carry a balance but always pay it off. He warns that a majority of customers are unlikely to share in the good news: “If I were a cardholder, I would not be holding my breath expecting a rate decline from my credit card issuer.”
Shevlin argues that while financial reform didn’t lower rates for the majority of American cardholders, “had the CARD Act not been enacted, many more customers would most likely have seen increases in their interest rates on their credit cards.”
This is a continuation of a trend we’ve been seeing for about a year: rates go down for low-APR cards, as well as for premium cash back and rewards credit cards, but rise for credit cards for people with bad credit. But in terms of other, non-interest rate revenue, the cost is actually being spread over a broader base.
In the pre-reform days, banks made a good chunk of revenue off of things like overdraft fees. Now that customers need to consciously consent every time they overdraw, banks cannot rely on the small segment that incurs fines. Instead, they’ve begun raising or introducing new annual fees and charging for services like paper statements.
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