Consumers have weathered a tough couple of years, with the mortgage collapse, record unemployment and massive changes to the credit card industry. But the worst is behind us, say analysts and experts well-versed in financial fortune-telling. Here are their predictions for a (somewhat) brighter 2011.
Prediction 1: A stabilizing economy; more consumer spending
A number of factors will lead consumers to loosen their purse strings in 2011. Employment reports will be positive by mid-2011, according to Wells Fargo's Annual Economic 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. And the controversial tax cut signed by President Obama on Dec. 17 will give the economy a boost, 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 consumer back out there spending," Coghill says.
Prediction 2: The credit card makes a comeback
If the credit card has been America's favorite villain, it's poised to make a comeback, in 2011 — at least for some Americans. Competition in the industry is heating up and card issuers are working overtime to attract borrowers with good credit. Consumers received approximately 1.2 billion offers for new credit cards during the third quarter of 2010 compared to 391 million offers a year ago, points out Andrew Davidson, a senior vice president with the direct market research firm Mintel Comperemedia. "Fewer consumers are defaulting on their cards and there is a sense of cautious optimism which is spreading through the industry," Mintel says.
If there is one dark spot, it's the fact that your credit cards will likely cost you more if you carry a debt. "We've seen interest rates skyrocket in the course of the last month and eventually that will translate into higher interest rates on your credit 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, many analysts predicted that credit card rewards programs would suffer as issuers watered them down to save money. However, "we continue to see offers for cards that are loaded with rewards, features and benefits and are, arguably, some of the best offers we have ever seen," says Davidson. In fact, eight out of 10 credit card offers are for rewards cards offering points, miles or cash back, up from six out of 10 offers in 2008, Davidson says.
Expect this to continue, as well as more offers for 0 percent introductory rates on purchases and balance transfers.
Card issuers will also be extending offers for their current customers to upgrade to more rewards-laden cards, Coghill says.
Prediction 4: Consumer debt may make a return appearance
For 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 to people with bad credit," says Kathleen Day, a spokeswoman for the Center for Responsible Lending. While some consumers cut down on their debt load by choice, many others had no choice as their card issuers lowered their credit lines and closed accounts. While Americans have been cautious to pull out the plastic, "with all these credit card offers, it creates 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 lending environment of 2011 won't be anywhere near pre-recession levels, according to a survey of bankers by FICO, the credit scoring firm. In fact, 42 percent of respondents expect the amount of credit requested by consumers to increase over the next six months, while only 31 percent expected the amount of new credit issued to increase. The news is just as bad for the nation's small businesses, as 59 percent of bankers expect small businesses to request more credit in the next six months, but only 37 percent expect lenders to actually increase the amount of small business credit that's awarded. "We continue to see a significant gap between expectations for credit demand and credit supply," said Andrew Jennings, chief research officer at FICO in a statement.
Prediction 6: Downfall of the debit card?
Debit cards have enjoyed tremendous growth. In fact, they are the most widely-used form of non-cash payments, accounting for 35 percent of the non-cash payment market, according to 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 debit card transactions — from 1-2 percent of the transaction to a mere 12 cents. Such a move would cut the profit margin on debit cards dramatically. "We're already hearing from the smaller banks who are looking at alternatives to debit because they rely heavily on that product for revenue," says Dennis Moroney, a research director at TowerGroup who studies bank cards. Consumers who have been enjoying debit card rewards will also likely notice a cutback by the end of next year, Moroney says. "I expect to see rewards becoming less of a function in 2011 for debit cards because they don'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 are currently prepaid cards, debit cards and automated clearing house (ACH) payments, with credit card usage actually on the decline. But 2011 will see a continued push toward everything mobile. With many technologies introduced in 2010, innovations will become more mainstream next year, experts say. "Mobile phones have become a central communication tool and people have come to use them as their main portal to the Internet," says Josh Wendroff, director of marketing for 3I Infotech, which provides payment processing services. In response, companies are creating mobile applications so consumers can make payments and even deposit checks via mobile phones, Wendroff says. Some entrepreneurs 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 of the Kardashian Kard, a prepaid debit card marketed to teens and young adults that consumer advocates slammed for its high fees and unfriendly terms. While bad publicity killed the product, there are plenty more waiting to take its place in the coming year, says Bruce McClary, a spokesman for ClearPoint Credit Counseling Solutions.
"There are strong indicators that 2011 holds great potential for the sub-prime credit market since recent figures show that the average credit score has been on the decline," says McClary. Many consumers will be looking for easy credit and be plum targets for financial predators. While the Kardashian Kard got the headlines, "the ones that worry me most aren't the ones attached to a celebrity, but the ones that have the look and feel of something that'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 world is still a scary place as far as identity thieves and other scammers are concerned. Expect identity theft to continue to increase in 2011, according to the Identity Theft Resource Center. It will also be more international in scope with more victims finding fraudulent credit and debit card charges originating from global transactions in Europe, Africa and Asia. Social networking sites such as Facebook and Twitter will also become more of a hotbed for fraud. "In 2011, hackers will continue to exploit these networks, using deception to feed on the feeling of 'community' that encourages the exchange of information which one would not normally provide," according to a statement released by the Resource Center.
Prediction 10: Data breaches — and data breach reporting — will rise
There's still plenty to be concerned about as far as safeguarding your credit card and other personal information. Data breaches will be more prevalent than ever in 2011 as thieves look to social networking sites and e-mail lists for potential victims, according to email security firm Proofpoint, Inc., and the Identity Theft Resource Center. Next year will also see the increased reporting of data breaches, as Proofpoint predicts that a federal data breach notification law will be passed. Such a law would mandate that potential 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 the economy begins to improve, we can't help but remember tough times and look for ways 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 priority with more Americans wanting to know more about retirement savings and investing, the survey found. Those new financial priorities are also evident in the increasing numbers of people who are seeking financial help — a number that's expected to climb in 2011, says Rus Halsey, director of operations for GreenPath Debt Solutions. "We're seeing a change in the mindset of customers. People really want to put themselves in the best financial situation possible."