Magazine article American Banker

Credit Card Issuers Face Harder Times: Growing Credit-Quality Problems, Stiffer Competition Confronting Banks

Magazine article American Banker

Credit Card Issuers Face Harder Times: Growing Credit-Quality Problems, Stiffer Competition Confronting Banks

Article excerpt

The credit card industry, which has enjoyed profitable times in the last couple of years, seems on the threshold of a new era in which banks may find the scrambling harder and the margins thinner than those to which they have grown accustomed.

For consumers, in contrast, the prospects are brighter. The pending arrival of Sears, Roebuck and Co.'s Discover credit card and the likelihood of lower interest rates on card balances will make credit more available, and less costly, than it has been.

While an upbeat mood prevailed at the American Bankers Association's annual bank card conference earlier this month, some bankers believe that the country has been saturated by cards and that credit-quality problems already are being felt.

These skeptics suggest that bank card growth, such as the 39% surge in outstandings at Visa last year, soon will level off. Some see that as merely part of a regular cycle, but others are not sure that is the case. Forecasts of higher losses have been voiced.

And high interest rates on cards -- a consumer-group complaint for years -- has drawn the attention of Congress. Hearings have been slated on bills that would cap rates, and another bill calls for studying the costs of operating a credit card portfolio.

One major banking company, Manufacturers Hanover Corp., last week announced that it would lower the interest rates on its MasterCard and Visa cards to 17.8% from the prevailing 19.8% The move did not spark a rash of similar announcements; other big banks were generally mum about plans for their card portfolios. …

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