The increasing number of baby boomers who are switching to pure convenience use of credit cards is significant. Based on preliminary end-of-year data, only 69% of receivables generate interest charges compared to 74% in 1996 and 90% in 1990. Among the baby boomer crowd it is estimated that less than 50% of what they charge will accrue interest charges.

       Among consumers who revolve credit card balances each month, a record number fail to make payments by the due date. At year end 1997, a record $20 billion worth of credit card balances were technically in default. Also American consumers filed nearly 1.4 million personal bankruptcies during 1997.

       On top of all this bad news are other worrisome developments for card issuers the cannibalization of credit card balances by debit cards and high LTV (loan-to-value) home equity loans.

       The VISA Check Card and MasterCard's MasterMoney card have exploded in use over the past two years. VISA projects that 10% of its total charge volume for this year will be generated through the VISA Check Card. VISA and MasterCard debit cards offer consumers all the convenience of a credit card without the hassles of encountering interest charges or fees. This year VISA and MasterCard are adjusting the consumer projections of debit cards to be consistent with their credit cards.

       The 125% home equity loan is a phenomena of 1997 and will continue this year. Consumers dogged with high credit card debt are discovering the advantages of consolidating balances at a lower interest rate through high LTV loans. Such loans offer some tax deductibility to boot.

       The good news for card issuers is the worst may be over. Most bank credit card issuers are reporting a slight drop in bad debt and a mild uptick in revolving balances during the last three months of 1997.

       What will all this mean for consumers?

       This year will be much the same as last year.

       Interest Rates Will continue to climb throughout 1998 ending the year at an average of 19.30%. This increase is driven by punitive interest rates, which range from 21% to 32% per annum. If the Feds raise rates credit card rates could go even higher.

       Fees Late fees and over-limit fees will continue to increase this year as more issuers move to the $25 level. Such fees currently average $19 but will most likely grow to an average of $21 by year's end. Also watch out this year for new fees such as account closing fees, inactivity fees, low-activity fees and customer service fees.

       Grace Periods Will continue to shrink with more issuers adopting a 20-day grace period in place of the long standing 25-30 day free-ride period.

       Rewards Programs Will continue to be either scaled back with new restrictions or terminated. Many of these programs threw in the towel during 1997. In some case banks have lost substantial sums of money offering credit card rewards.

       Consolidation More credit card issuers will exit the business this year further concentrating the business and possibly diminishing competition.

       Platinum Cards Hotter than ever . . .  a marketing miracle for 1997 sure to carry over in 1998. 

ATM FEES

       Two conflicting studies on ATM fees were released this month. One shows consumers are tolerant of such fees while the other study reveals consumers are mad as hell.

       Mentis Corporation says consumers are very tolerant of incremental increases in average ATM surcharge amounts. The Mentis study "Consumer Attitudes and Preferences" shows well over 50% of consumers say they would continue to use ATMs if the average surcharge increased from $1.50 to $2.00. However if the average surcharge doubled to $3.00, more than 75% of current surcharge- paying consumers would discontinue their use of other banks' ATMs altogether.

       Meanwhile Opinion Research Corporation says its study shows 78% of ATM consumers actively avoid ATMs with fees. The study also revealed that 67% of ATM customers say ATM fees discourage them from considering the fee-charging bank for other products and services. Of consumers using ATMs outside their own bank's branch system and incurring surcharges, 47% say it "makes them mad" while 38% say it "bothers them somewhat".

FLAWED  ANALYSIS

       The Consumer Federation of America accused the banking industry last month of "irresponsible" credit card lending that has strapped an estimated 60 million American households with credit card debt exceeding $7,000 on average. To make its case the CFA cited card issuers with high charge-off rates as the most reckless. The consumer group said the "least responsible" banks include Mellon Bank and Hurley State Bank with a 9% charge-off rate, Wells Fargo with an 8.6% chargeoff rate, First Union with an 8.4% loss rate and Advanta with an 8.2% chargeoff rate. Among the "most responsible" issuers cited MBNA with a 2.1% chargeoff rate, People's with 2.4% loss rate, Travelers Bank at 2.7% and First USA at 2.9%. The CFA analysis is grossly flawed since it fails to take into account the growth rate in receivables for each issuer. For example chargeoffs are artificially low at MBNA and First USA since both issuers are the two fastest growing major issuers while Wells Fargo and Advanta are among industry laggards. MBNA's card loans grew 31% during the period cited by the CFA. By contrast Wells Fargo's card loans only increased 8% during the same period. Advanta actually experienced a loss in card loans of 14% between mid-year 1996 and 1997. According to Bankcard Barometer, People's card loans are growing 23% annually, First USA is growing by 32% and Travelers is up 41%. Wells Fargo is growing only 8% per year while First Union is up by 10% A simplistic analysis argues that if MBNA is growing four times as fast as Wells Fargo then its losses, on a percentage of outstanding basis, would be four times lower.

DRIVER'S  EDGE

       Citibank unveiled its replacement for the 'Ford Citibank VISA/MasterCard' this month. The new 'Driver's Edge VISA/MasterCard' offers cardholders the ability to earn rebates toward the purchase or lease of any new vehicle, regardless of make or model. Citibank says all 'Ford Citibank' cardholders were converted to the new program as of January 1. Last summer Ford decided to end its co-branded rebate program with Citibank at the end of 1997. The new 'Citibank Driver's Edge' card offers a 2% rebate on purchases with an annual rebate cap of $500. A maximum of $1,500 may be accumulated towards the purchase or lease of any one vehicle. Cardholders simply submit a special 'Redemption Form' and two proofs-of-purchase to collect the rebate directly from Citibank. Citibank is also running a sweepstakes, giving away a new car each month.

REVOLVING  CREDIT  DECLINES

       For the first time since May 1993 overall consumer credit has declined, according to figures released by the Federal Reserve this month. Consumer credit outstanding fell at a 4% seasonally adjusted rate in November, following an 11.25% rate of increase in October. Total consumer credit dropped from $1,235.2 billion in October to $1,231.0 billion in November. Revolving credit is growing at an annual rate of -4.1% versus +10.7% one year ago. In terms of actual dollars, total revolving credit has risen from $495 billion to $528.1 billion over the past twelve months. Between October and November revolving credit actually dropped $1.8 billion, the largest single month drop since the stock market crash of November 1987.