The Federal Reserve Board is expected to cut interest rates on December 11. This reduction normally is followed by interest rate reductions by major lenders.
Major credit card issuers normally adjust their rates accordingly within a 30 day time frame. However, it appears consumers will not see the relief this time.
Creditcards.com reports that average interest rates on credit cards has actually gone up. This is opposite the normal reaction. The reason is likely two-fold.
Credit Crunch
Several major credit card issuers have been directly affected by the subprime mortgage loan crisis. Indeed, several major banks have increased reserves in anticipation of huge losses. Bad loan write-offs will be measured in the billions of dollars at several banks. This is money that they cannot currently lend out.
Higher Credit Card Defaults
Late payments and charge-offs are on the rise. Many major credit card issuers have reported substantial increases in the number of charge-offs. They are holding interest rates higher in order to compensate for the higher risk represented by the outstanding debt of distressed consumers.
Although interest rates on credit cards will likely stabilize somewhat after this next anticipated interest rate reduction by the Fed, it is unlikely that card interest rates will begin to drop in the near future. The credit crunch and subprime mortgage loan crisis are both expected to continue through 2008 despite the recent announcement from the White House.
Credit card charge-offs are up substantially. This article from Wednesday provides the numbers:
http://blog.stopccdebt.com/credit-card-charge-offs-up-20-percent/