Credit card interest rates are through the roof

By Aaron Smith, staff writer


NEW YORK (CNNMoney.com) -- Credit card interest rates soared in the second quarter to a nine-year spike, according to the market research company Synovate.

The average interest rate on existing cards jumped to 14.7% last quarter, up from 13.1% a year earlier, Synovate said. Synovate is the market research arm of Aegis Group plc.

The jump created a dramatic spread of 11.45 percentage points between the average credit card interest rate and the prime rate -- the largest margin in 22 years, according to Synovate.

Synovate study director Lauren Guenveur said the increase in interest rates was driven primarily by the Credit Card Accountability Responsibility and Disclosure Act of 2009. She said the so-called CARD Act gave credit card companies a limited amount of time to raise rates, "before they could no longer do so freely." This put pressure on issuers to aggressively raise rates, she said.

Guenveur added that the recession and nation's high unemployment were also driving the increase, because it was causing the default rate to go up.

"This is largely due to consumers still charging on their credit cards, but being unable to pay," she said. "Default rates should remain high as long as unemployment remains high."

Synovate spokeswoman Jennifer Chhatlani also attributed the rate increase to "returning confidence" in the credit card sector. The second quarter of 2010 saw the second-highest level of credit card spending ever, Synovate said.

Synovate reported that credit spending has increased, on average, by 6% in the first half of 2010 to $1,559. But plastic swipes still fall short of third quarter 2008 numbers, which Synovate describes as "the quarter prior to the financial meltdown."

The credit card industry has taken notice of the increase in activity. Offers for new cards reached a fever pitch last quarter. U.S. households received 640.3 million credit card offers in the second quarter, a surge of 83% from 349.1 million offers during the same period last year.

"Issuers are desperate to lock-in customers with good credit, so they will mail many offers to these households in order to gain their attention," Guenveur said.

She said direct mailing is the most expensive way to advertise, and has decreased in the last couple years. But now direct mailing is pulling out of its slump.

"As the economy recovers, issuers have released the pause button and started to spend money on direct-mail marketing again," she said. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,979.13 59.54 0.35%
Nasdaq 4,526.48 -1.03 -0.02%
S&P 500 1,986.51 4.91 0.25%
Treasuries 2.43 0.02 0.87%
Data as of 1:17am ET
Company Price Change % Change
Bank of America Corp... 15.52 0.07 0.45%
Apple Inc 100.57 0.04 0.04%
General Electric Co 26.36 0.31 1.19%
Intel Corp 34.50 0.16 0.47%
Staples Inc 11.32 -0.30 -2.58%
Data as of Aug 20

Sections

This month, Delaware became the first state to pass a law giving heirs the right to access the online accounts and assets of someone who has passed away. More

Median income is up 3.8% since 2011, though it's still down since the economic recovery began in 2009. More

Small business owners say the economy is still their biggest challenge, which keeps them from expanding and hiring, according to a CNNMoney-Manta survey. More

This month, Delaware became the first state to pass a law giving heirs the right to access the online accounts and assets of someone who has passed away. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.