Credit Card Companies Stage Mass Exodus from Affiliate Channels

Have you tried to apply for new credit recently? Noticed the lack of direct mail credit card offers in your mailbox? Or the reduced number of credit cards being offered through online channels?

Credit card companies have steadily reduced their direct-mail offers over the past year. Now, Chase, Citibank, HSBC, Discover, Bank of America, and American Express have all drastically reduced their credit card offerings in the affiliate marketing arena as well. Websites like CardRatings.com and CreditCards.com now display significantly fewer card offers than they did a couple of months ago.

Some credit card companies, like HSBC, have removed all their cards from affiliate sites. And others, like Chase, have even stopped offering cards through their own site.

The trend started with Chase's announcement that it would be pulling all of its credit card offers from affiliate sites effective December 31. Citibank followed suit, then HSBC, Discover, BofA, and AMEX. To read the progression in more detail, check out the posts from Credit Matters Blog.

So why the mass exodus from the affiliate channel? Sure, it saves credit card companies from paying commission to their affiliates. And it reduces the advertising costs of creating online banner ads, teasers, and the like. The burden of processing and setting up new customers is also substantially trimmed.

But all of these benefits are secondary to the simple fact that creditors don't want to take on more risk. The affiliate channel typically brings in a lower quality of applicant than traditional channels. As Campbell Edlund said in the American Banker article on this same subject, "Who goes to the affiliate channels? It’s not somebody who's 700 FICO." And that's exactly what the credit card companies don't need: more consumers who leave them holding the bag.

So credit card companies are clamming up, in effect. They're getting pickier about who they lend to, meaning that the average consumer has less access to new, good credit.  

Instead of reeling in new customers, credit card companies are now focusing on squeezing more money from existing customers. How do they do that? Raise interest rates, of course. Many have seen their rate go up by as much as 5% annually, no matter how loyal a customer they've been or how high their FICO. But with less and less new credit available on the market today, we often don't have a choice but to put up with these squeeze tactics.

Sure, you can read the fine print and opt-out of the interest rate hike. But by opting out, you usually must also agree to have your account shut down at the end of your membership term and pay your balance in full at that time. The government is doing what it can, but new regulations prohibiting these kinds of rate hikes won’t take effect until July 2010. Until then, we're on our own.