The following was provided by J.D. Power:
As we approach the end of the year, the major storylines that have developed in the credit card industry are creating ripple effects through the entire financial landscape. Even as inflation has dropped to its lowest level since February 2021, customers are still trying to find their footing, and they are leaning on their credit cards to help.
Using data from its 2024 U.S. Credit Card Satisfaction Study, J.D. Power identified the biggest trends in the credit card industry this year and analyzed how customers are behaving in response to these trends. From late fees to card delinquencies to revolving card debt, here are three issues set to define the year ahead.
The Spirit of the Late Fee Cap
This past March, the Consumer Financial Protection Bureau announced that it would be capping credit card late fees at $8 per occurrence. The news came as a welcome sign for customers. In the spring, 25% of credit card customers told J.D. Power that they had paid a late fee in the past 12 months, and 73% of those had paid more than $8.
But in May, the American Bankers Association (ABA) and the U.S. Chamber of Commerce filed a legal challenge, and a federal judge agreed, which blocked the CFPB’s plan to curb fees.
The cap could be resurrected. In September, Former President Donald Trump made a campaign promise that, if elected, he would support a cap on credit card interest rates.
While the spirit of the rule seems consumer-friendly, it’s worth noting that neither the late fee nor interest rate cap proposals would immediately affect the majority of U.S. cardholders. Only 18% of U.S. cardholders say they have paid more than an $8 late fee, and 24% of cardholders report having an interest rate above 10%.
These numbers are likely larger, as most cardholders don’t know such pricing details about their credit cards and may not be aware of even benefitting from such policy caps. Still, some think the policy will resonate with customers and as an early mover gesture. Notably, PNC and Wells Fargo have already begun reducing credit card late fees.
As is often the case, when one issuer finds success in a strategy, others follow. Keep an eye out for more issuers offering late fee caps to try to build goodwill with their existing customers while enticing new ones.
Are Card Delinquencies Really on the Rise?
While high consumer prices and inflation fatigue may make it seem like credit card payment delinquencies are on the rise, J.D. Power data finds that the level of revolving card debt and card late payment fees is flat year over year.
Cardholders do say they have a harder time being able to pay their bills—credit card or other—on time now than they did in 2023 (ability to pay fell to 4.26 in 2024 vs. 4.29 in 2023 on a 5-point scale). While some brands are seeing their customers’ ability to pay bills on time fall significantly, brands with more financially healthy customers and that have a single product focused on credit building are seeing improvements.
As issuers find more ways to attract desirable customers, some may opt to narrow their focus and tailor their marketing strategies to customers who are actively looking to consolidate or pay down their debt. Look for issuers to try to build awareness for their debt management tools as well, hoping to build engagement and bolster customer awareness and education.
Rich in Miles
After years of pent-up travel demand during the pandemic, customers are once again taking to the skies, and they’re doing so in record numbers. But after airline rewards credit cards came under attack at a May CFPB hearing, some analysts wondered if customers are racking up big credit card debt just to accrue airline miles.
According to J.D. Power data, 40% of airline cardholders have revolving debt, which is significantly below 51% of all card averages. Airline cardholders are also significantly more financially healthy (61% vs. 46% all card average) and are much more likely to say that their debt is completely manageable. Of course, there are exceptions, but by and large, airline cardholders tend to manage their finances relatively well.
It makes it clear why smaller carriers have an issue with bigger brands that can offer airline card miles: these types of customers are extremely attractive, and they’re drawn to this perk. And while that may make it difficult for smaller carriers to compete in the marketplace for customers, it also places an onus on companies to find a way to match that kind of value proposition and offer a service that is as attractive as discounted airfare.
Finding the Opportunity
As issuers take an appraisal of the developments of 2024, the experiences of the past 12 months offer a roadmap to new strategies for 2025. The marketplace is moving in a new direction, and a new breed of customers are prioritizing different things. How they interact with their credit cards and what they hope to gain from a relationship with an issuer should influence these next steps.
Issuers that can digest this information and meet customers where they are will not only reap the benefits of increased customer loyalty and retention, but they will become more attractive in a very competitive marketplace.