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PreApproved Credit Card Offers Becoming Pre-Rejections
Remember when you used to get piles of preapproved credit card offers in the mail and through email? At one time, consumers received so many pre-approval offers that some people actually opted-out (by calling 888-5-OPTOUT) to stop receiving further offers.
Ah, those were the good old days, when credit card companies were allowed to openly compete in a low-legislated market and thus battling each other for new customers and to keep the customers they had. Now; however, with tightening legislation and the fear of new laws that can cripple the credit card industry, many of the preapproved credit cards for bad credit people have vanished from the market. This was predicted by CreditFederal.com as far back as August, 2007, in our article "Where Have Bad Credit Cards Gone?"
Here are some of our previous articles predicting a decrease in subprime credit cards offers:
Bad Credit Card Marketing
Bad Credit Card Rap
Bad Credit Card Issuers or Bad Practices?
Cardholders May Be The True Problem With Credit Cards:
Credit cardholders may be the true problem and not the credit card companies. Trillions in revolving debt began with those who laid out their plastic cards to make charges. There are piles of evidence that people are bad decision makers when it comes to how they use credit cards. Even when presented with full and fair information, they often make decisions that are not in their own economic best interest. This is evident by considering the new rules and pending legislation.
Consider all the cards with low interest rates that attempt to lure in consumers. About one third of consumers will choose one credit card over another simply because the issuer has the lowest introductory interest rate. Those that do this, may be left with higher finance charges later. Economists have done studies and found consumers do choose a card that has a rate of 4.9% for six months and not a card with the 7.9% interest for 12 months. It would be good if balances were paid off within six months. But often the balance is not paid off. Most consumers have an average balance of about $2,500 a year. In the end, more interest is paid than if the 7.9 interest card was chosen.
It could be tossed up to just plain carelessness in deciding to take the lowest interest rate card. Some economists see a systematic psychological reaction and that consumers don't consider future costs. Our view may be that what is important happens right now instead of later. The focus may only be a "aha response" that there is a card with the lowest interest rates available. Companies understand that concept and may market to the idea of giving consumers immediate gratification.
Often we don't view ourselves as a consumer who will end up paying late fees or going over the credit limit, if we did, we would review the consequences for such actions. If consumers were concerned about how much more a card is going to cost in the end, the lowest interest card would not be chosen. Some consumers may not know what their credit card is really costing.
Consumers who have credit cards many times charge without thinking. Experiments have found we are many times willing to pay twice as much for something when using a credit card and not when paying with cash. Using credit cards may not feel like using real money. Studies reveal that the typical consumer unnecessarily spends about $200 a year just in interest payments. Those same consumers may save money in a savings or checking account and still have a credit card balance to pay.
Problems may be that consumers are not processing credit card information. Even when companies let customers know what their cards are costing them, habits may not be changed. The Truth in Lending Act and the Schumer Box gives a summary of credit-card terms with a font size dictated by the Federal Government, still consumers pay the fees. Even with disclosure policies it has not improved the situation.
In 2007 a bill was introduced (that was not passed) that would have required credit card companies to state on each billing statement how long it would take a person to pay off his balance and how much it would cost in principal and interest if only the minimum required payment was paid each month. That is another problem, a printed statement about the low minimum payment always gets our attention and thus that is what is often paid. Now a provision to let consumers know about minimum payments is before the Senate.
Consumers may need to be told exactly how much they pay for their card and that may have an affect on behavior. It is like saying how many miles per gallon an auto gets in the city or in the country. Consumers need to know the costs of their spending habits.
Economist Richard Thaler and legal scholar Cass Sunstein, who are in the White House Office of Information and Regulatory Affairs, indicate the need to go further. Their book "Nudge" mentions that once a year credit-card companies would have to state all the fees customers paid during the past twelve months. This could give customers more knowledge so they know what they are paying. In the end it could lead to more responsible spending. For example, consumers usually will not purchase something after it goes off sale.
Almost half of consumers pay off credit card balances in full by the end of the month. Letting those consumers know how much their cards are costing will not matter. However, telling consumers who don't pay balances in full each month in a manner that is understandable could yield better decisions when they use credit cards.
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