Consumers have weathered a tough couple of years, with themortgage collapse, record unemployment and massive changes to the credit cardindustry. But the worst is behind us, say analysts and experts well-versed infinancial fortune-telling. Here are their predictions for a (somewhat) brighter2011.
Prediction 1: Astabilizing economy; more consumer spending.A number of factors will lead consumers to loosen theirpurse strings in 2011. Employment reports will be positive by mid-2011,according to Wells Fargo's AnnualEconomic Outlook for 2011. Credit card and mortgage loan delinquencies will both show double-digit drops over the next year, says credit information management company TransUnion. Andthe controversial tax cut signed by President Obama Dec. 17 will give the economy aboost, says Carrie Coghill, director of consumer education for FreeScore.com. "Everyone is going to have a little more money in their pocket next year so that will drive the consumerback out there spending," Coghill says.
Prediction 2: Thecredit card makes a comeback.If the credit card has been America's favorite villain, it'spoised to make a comeback, in 2011 -- at least for some Americans. Competitionin the industry is heating up and card issuers are working overtime to attractborrowers with good credit. Consumers received approximately 1.2 billion offersfor new credit cards during the third quarter of 2010 compared to 391 millionoffers a year ago, points out AndrewDavidson, asenior vice president with the direct market research firm Mintel Comperemedia."Fewer consumers are defaulting on their cards and there is a sense of cautiousoptimism which is spreading through the industry," Mintel says.
If there is one darkspot, it's the fact that your credit cards will likely cost you more if youcarry a debt. "We've seen interest rates skyrocket in the course of the lastmonth and eventually that will translate into higher interest rates on yourcredit cards," says FreeScore.com's Coghill. On Dec. 21, the CreditCards.com weekly credit cards rates survey pegged the national average rate for new card offers at 14.68 percent. A year earlier, it was 12.98 percent.
Prediction 3:Rewards become more rewarding.When the Credit CARD Act of 2009 went into effect, manyanalysts predicted that credit card rewards programs would suffer as issuerswatered them down to save money. However, "we continue to see offers for cardsthat are loaded with rewards, features and benefits and are, arguably, some ofthe best offers we have ever seen," says Davidson. In fact, eight out of 10 credit card offersare for rewards cards offering points, miles or cash back, up from six out of10 offers in 2008, Davidson says.
Card issuers will also be extending offers for their currentcustomers to upgrade to more rewards-laden cards, Coghill says.
Prediction 4:Consumer debt may make a return appearanceFor the past couple of years, consumers have been unloading their credit card debt, but some experts fear this may be the year in which that trend starts to change. "Credit card solicitations are up including topeople with bad credit," says Kathleen Day, aspokeswoman for the Center for Responsible Lending. While some consumers cutdown on their debt load by choice, many others had no choice as their cardissuers lowered their credit lines and closed accounts. While Americans havebeen cautious to pull out the plastic, "with all these credit card offers, itcreates some sense of security that 'Oh, it must be OK to use credit again,'"says Coghill.
Prediction 5:Borrowing power remains limited.While credit card offerings may be on the rise, the lendingenvironment of 2011 won't be anywhere near pre-recession levels, according to asurvey of bankers by FICO, the credit scoring firm. Infact, 42 percent of respondents expect the amount of credit requested byconsumers to increase over the next six months, while only 31 percent expectedthe amount of new credit issued to increase. The news is just as bad for thenation's small businesses, as 59 percent of bankers expect small businesses torequest more credit in the next six months, but only 37 percent expect lendersto actually increase the amount of small business credit that's awarded. "We continue to see asignificant gap between expectations for credit demand and credit supply," said Andrew Jennings, chiefresearch officer at FICO in a statement.
Prediction 6:Downfall of the debit card? Debit cards have enjoyed tremendous growth. In fact, theyare the most widely-used form of non-cash payments, accounting for 35 percent of the noncash payment market, accordingto a Federal Reserve study. But that may all be changing, thanks to proposed rules by the Fed that would cut the interchange fees that banks charge retailers for debitcard transactions -- from 1-2 percent of the transaction to a mere 12 cents. Sucha move would cut the profit margin on debit cards dramatically. "We're alreadyhearing from the smaller banks who are looking at alternatives to debit becausethey rely heavily on that product for revenue," says Dennis Moroney,a research director at TowerGroup who studies bank cards. Consumers who havebeen enjoying debit card rewards will also likely notice a cutback by the endof next year, Moroney says. "I expect tosee rewards becoming less of a function in 2011 for debit cards because theydon't have the margin in the product to be able to afford to offer them."
Prediction 7:Payments continue to move mobile.The fastest growing forms of payment arecurrently prepaid cards, debit cards and ACH payments, with credit card usageactually on the decline. But 2011 will see a continued push toward everythingmobile. With many technologies introduced in 2010, innovations will become moremainstream next year, experts say. "Mobile phones have become a centralcommunication tool and people have come to use them as their main portal to theInternet," says Josh Wendroff, directorof marketing for 3I Infotech, which provides payment processing services. Inresponse, companies are creating mobile applications so consumers can makepayments and even deposit checks via mobile phones, Wendroff says. Someentrepreneurs are even working on ways to make payments via social networking sites.
Prediction 8:Financial predators will proliferate.This year saw the coming and going ofthe Kardashian Kard, a prepaid debit card marketed to teens and young adultsthat consumer advocates slammed for its high fees and unfriendly terms.While bad publicity killed the product, there are plenty more waiting to takeits place in the coming year, says Bruce McClary,a spokesman for ClearPoint Credit Counseling Solutions.
"There are strong indicators that 2011 holds great potentialfor the subprime credit market since recent figures show that the averagecredit score has been on the decline," says McClary. Many consumers will belooking for easy credit and be plum targets for financial predators. While theKardashian Kard got the headlines, "the ones that worry me most aren't the onesattached to a celebrity, but the ones that have the look and feel of somethingthat's issued by a serious bank but have a lot of fees hiding behind it."
Prediction 9: Identity thieves will find new ways to scam.The economy may be looking brighter in 2011, but the worldis still a scary place as far as identity thieves and other scammers areconcerned. Expect identity theft to continue to increase in 2011, according tothe Identity Theft Resource Center.It will also be more international in scope with more victims findingfraudulent credit and debit card charges originating from global transactionsin Europe, Africa and Asia. Social networking sites such as Facebook and Twitterwill also become more of a hotbed for fraud. "In 2011, hackers will continue toexploit these networks, using deception to feed on the feeling of 'community' thatencourages the exchange of information which one would not normally provide,"according to a statement released by the Resource Center.
Prediction Number 10: Data breaches-- and data breach reporting -- will riseThere'sstill plenty to be concerned about as far as safeguarding your credit card andother personal information. Data breaches will be more prevalent than ever in2011 as thieves look to social networking sites and e-mail lists for potentialvictims, according to email security firm Proofpoint,Inc., and the Identity Theft Resource Center. Next year will also see theincreased reporting of data breaches, as Proofpoint predicts that a federaldata breach notification law will be passed. Such a law would mandate thatpotential victims be notified that their data was compromised. Already, 46 states have passed laws requiring ID theft notification.
Prediction 11:Financial improvement remains a priority.We've all been through a tough couple of years and as theeconomy begins to improve, we can't help but remember tough times and look forways to avoid them in the future. In fact, according to a study from Fidelity Investments,the number of Americans coming up with financial New Year resolutions has increased to 42 percent from 35 percent last year. Financial education is also a bigger prioritywith more Americans wanting to know more about retirement savings andinvesting, the survey found. Those new financial priorities are also evident inthe increasing numbers of people who are seeking financial help -- a numberthat's expected to climb in 2011, says RusHalsey, director of operations for GreenPath Debt Solutions. "We'reseeing a change in the mindset of customers. People really wantto put themselves in the best financial situation possible."
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