Payment Card News

Rate Impact

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The prime rate dropped to a four year low of 4.0% yesterday and has set the stage for a scramble in the credit card business to establish minimum interest rates, or floor rates, and raise the interest rate spreads, or the number of percentage points added to the prime rate. When the prime rate remained at 4.0% between July 2003 and July 2004, average offered credit card interest rates hovered around 12%. This month average offered credit card interest rates came in at 14.58%, compared to 16.18% for October 2007. During this period the prime rate has dropped from 7.75% to 4.50% or 325 basis points, while average offered credit card interest rates have dropped 160 basis points. However, average punitive interest rates on credit cards has dropped from 31.74% to 28.49% over the past year, or 325 basis points. Lower promotional rates should also surface in the coming months with many 0% offers hitting mailboxes. While the cut in the prime rate is generally good news for cardholders trouble still abounds in the credit card world as more consumers get into financial difficulty. Watch all credit card statements and communications from your card issuer as credit lines are being reduced and new rates/terms implemented. About 85% of bank credit cards carry variable interest rates. U.S. consumers currently owe nearly $1 trillion on all credit cards including store and gas cards.

PRIME RATE & CREDIT CARD RATES
Prime Fixed Variable
Oct 07: 7.75% 14.99% 16.39%
Nov 07: 7.50% 15.00% 16.29%
Dec 07: 7.25% 15.02% 16.02%
Jan 08: 6.50% 14.97% 15.79%
Feb 08: 6.00% 14.95% 15.64%
Mar 08: 6.00% 14.93% 15.60%
Apr 08: 5.25% 14.89% 15.35%
May 08: 5.00% 14.88% 15.11%
Jun 08: 5.00% 14.85% 15.08%
Jul 08: 5.00% 14.78% 15.01%
Aug 08: 5.00% 14.73% 14.77%
Sep 08: 5.00% 14.72% 14.68%
Oct 08: 4.50% 14.72% 14.55%
Source: CardTrak (www.cardtrak.com)

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