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Card Issuers Once Again Pursuing New Customers
— Albeit Cautiously

They’re back.

Many Americans are beginning to see their mailboxes once again bulge with credit card solicitations following something of a hiatus in card offers brought on by the recession.

The card industry has mailed out nearly 2 billion card offers so far this year, signaling a renewed interest on the part of the industry in pursuing new customers. Although it is too early to tell if the number of solicitations will match the more than 4 billion card offers that were mailed in 2008, it does confirm the industry is outpacing itself from a year ago when only about one billion offers were mailed out in the first half of the year.¹

If the industry’s quest for more customers is less aggressive than it was in 2008, it may be because a lot has changed in the last two years. Not only did the country slump into the worst economic downturn in 70 years, but last year Washington lawmakers completely re-wrote the rulebook by which the card industry must play.

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act, which has been phased-in over the last 18 months, not only overhauled how the industry markets itself to new customers, it also eliminated many of the industry’s once-profitable billing practices. One analyst estimated the elimination of the old billing practices will cost the industry $50 billion during the next five years.²

Among the changes brought on by the CARD Act is the elimination of low, short-term introductory rates designed to lure new clients. Now, when customers sign on the dotted line, interest rates are fixed for one year. Additionally, issuers can no longer raise rates on existing debt and many of the late fees and penalties once common have been reigned in.  

In the last 18 months, a lot has changed for consumers as well. With unemployment hovering around 10 percent, many once-reliable borrowers have found themselves unable to keep pace with their bills. As a result, card companies have seen significant delinquencies and charge-offs in recent months. In fact, card issuer write-offs hit an all-time high in 2009, according to Bloomberg, when the industry wrote off a record total of $89 billion in card debt. (In 2008 $56 billion was written off.)³

FICO scores, meanwhile, are trending downward. During normal economic cycles, about 15 percent of consumers are classified as “poor” credit risks (meaning they have FICO scores less than 600); however, in July of this year, FICO said that more than 25 percent of consumers were classified as poor risks. On the other end of the spectrum, those with “perfect” credit (FICO scores of 800 – 850) have become scarcer. They slid form 18.7 percent of consumers to 17.9 percent.⁴

All of this means that card issuers eager to attract new customers must proceed with caution.

Early Warning’s Portfolio Monitoring service can help card issuers better determine an applicant’s risk level as soon as the account is opened — before defaults become a problem.

Our research shows that high-risk trends in DDA account activity often foreshadow other similar financial activity in other accounts. When consumers intentionally or unintentionally cause credit losses, it is typically preceded by high-risk DDA activity. Portfolio Monitoring service helps issuers quickly distinguish high-risk new applicants by providing them with a more comprehensive picture of their new customers. Screening is conducted after account opening approval and for the first six months the account is open. Talk to your Early Warning representative about the value of Portfolio Monitoring service.