Credit card legislation signed President Barack Obama Friday is expected to seriously impact the credit card industry and consumers’ relationships with credit, and as a result, marketing from the industry is likely to change in message as well as volume.
The legislation, which amends the Truth in Lending Act, is aimed at protecting consumers from late fees and interest charges by making credit card companies more transparent about lending practices. While the goal is to protect consumers, it may mean less credit for them as banks that are currently able to finance higher credit limits through their profits on late fees and interest will have to cut back on credit limits.
“Credit cards are a strong economic driver and are relied upon by consumers and small businesses to make payments and to bridge short-term financial gaps,” said Edward L. Yingling, president and CEO of the American Bankers Association in a prepared statement. “The goal in the legislation should be to obtain the right balance: providing protections, while maintaining the important role of credit cards in providing loans to consumers and small businesses. Unfortunately, we believe the bill does not achieve that balance and will therefore cause an unnecessary decrease in credit availability.”
While CitiGroup and American Express, Keefe, Bruyette & Woods, a financial services consultancy firm that analyzes the credit card industry, all declined to comment, a spokesman for one credit card company, who declined to be named, mentioned that it was too early to tell how this would change marketing. Agencies TBWA, BBDO and G2 also declined to comment on what this would mean for the marketing plans of credit card companies going forward.
For direct marketers looking to reach consumers, who will now have a more limited credit, there could be challenges.
“Direct marketers depend upon credit cards for sales, but particularly remote sales, since consumers can’t just walk into a store with cash,” said Linda Woolley, EVP for public affairs at the Direct Marketing Association via e-mail. “Anything that harms credit for consumers has a ripple effect on our members. However, bad debt also negatively affects our members through chargebacks, etc. We need a strong credit card system. Our hope is that this will do so, but we are not certain.”
The new regulations and the changing marketplace will affect the direct marketing programs of credit card issuers — some of the largest direct mail advertisers. Direct mail volume from card companies will almost certainly continue to fall, as it has since hitting a peak of 8.2 billion offers mailed in 2006. Partly, the reductions will be in the interest of cutting costs, but they also will be an effect of card issuers targeting a smaller universe of prospects.
“They are cutting back not only because they need to reduce their risk,” explains Stephen Clifford, VP financial services, Mintel Comperemedia. “They are not sending offers to the riskier people that they have in the past because they need to reduce their losses.”
Experian, an information services group that has been tapped by some US banks to assist in marketing campaigns, is gearing up for this more focused approach to targeting.
“We anticipate an increase in prospecting over the next three to 18 months, but with more importance placed on targeted and methodical selection of prospects that are low risk, credit qualified and will likely want to open a new card account in the near future,” wrote Michele Bodda, VP, prospecting and acquisitions, Experian, in an e-mail to DMNews.
Clifford notes that, if mail volume continues at the rate seen in Q1 2009 (a 72% drop from Q1 2008), consumers may see fewer than 2 billion credit card offers being mailed this year. Although the Internet will remain an important channel for credit card marketers, Clifford said he does not foresee a huge uptick in online advertising to make up for the drop in mail.
The reduced number of credit card offers being sent this year will likely fall into two categories: stripped-down, utilitarian cards with few perks, and cards that do offer rewards, but with an annual fee attached. These offers are likely to be simpler, without the elaborate combinations of promotional rates and rewards that were mailed out in past years.
“As far as the offers go, APRs are on the way up, annual fees will likely make a comeback, and rewards and other perks are going to be less valuable — we’ll see some go away because the industry just can’t afford to extend those any more the way they have,” Clifford said.
Credit card companies have already been challenged this year. According to Synovate Mail Monitor, the market research arm of Aegis Group that tracks direct mail, credit card companies are already cutting back on marketing efforts and are marketing cards with fees.
In a recent study, Synovate found that US households are receiving far fewer offers for credit cards these days and the offers they do receive are for cards carrying an annual fee.
The study found that in the first quarter 2009, US households received 372.4 million offers, which is a 67% drop from the 1131.6 million offers received during Q1 2008. In addition, the study found that 27% of offers carried an annual fee during Q1 2009, up from 18% one year ago.
