Card banks doubt fees will fall; rate decline also considered unlikely, survey finds.

Card Banks Doubt Fees Will Fall

DALLAS - Despite intense competition in the credit card industry, 90% of the nation's biggest card banks expect rates and fees to remain stable in the near future, according to a new study from the American Bankers Association.

The trade group's finding comes as the industry faces adverse publicity and pressure from consumer groups to lower interest rates and annual fees.

Banks have been harshly criticized in recent months for maintaining prices even as their cost of funds falls.

Rumblings of War

Despite the survey, bankers may be responding to the criticism. Some industry observers said they already hear rumblings of a credit-card rate war in the distance.

The bankers group, however, waved its survey as proof that customers are more interested in good service than reduced interest rates and annual fees.

"Prices are very important, as they are in any commodity business, but we need to focus on more than interest rates and fees," said Joseph W. Saunders, the incoming chairman of the ABA's bank card division.

Mr. Saunders, who also is president and chief executive of Household Bank, Salinas, Calif., reported the survey findings Wednesday at the ABA's annual card conference.

Seventy-one percent of 94 bankers who responded to the August survey cited customer service as a major feature distinguishing their card program from those of competitors.

Price Is Also a Factor

But price was also seen as a distinguishing factor.

About 55% of survey participants cited interest rates as a big marketing advantage, while 39% cited their low annual fees.

Mr. Saunders, nevertheless, rebutted the calls for lower prices. He said the critics often examine short-term rates to determine bank credit-card funding costs but ignore long-term rates and less advantageous funding instruments such as commercial paper.

Critics also ignore the intense competition in the industry, bankers here complained. Few, however, denied that the card business continues to be profitable.

"We wouldn't be in the business if we didn't think we could make money at it," Mr. Saunders said.

Pressure to Cut Rates

Some industry observers say that competition will nevertheless force many banks to lower their credit card rates soon.

"There is a sensitivity to rates, and the industry will see increased pressure on rates," said Jenie M. Driskill, vice president of Synergistics Research Corp. in Atlanta. "Fees and rates will be important."

Proving a Point

Ms. Driskill cited her firm's own survey of 826 MasterCard and Visa cardholders at the end of August to prove her point.

It showed that 36% of 586 active users recently curtailed their use of cards because interest rates were too high.

About 40% of the 826 respondents said they had been wooed through the mail with preapproved applications for cards with lower rates than were posted for their current cards. Just under 20% opted for the lower-rate cards, while another 20% sought lower rates independently, the Synergistics study found.

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