Key Federal Savings Bank's quest to find partners that will market its secured credit card has led it to one of the top five home equity lenders, United Companies Financial Corp.
Since June, United Companies has been selling home equity lines of credit to its mortgage customers that are linked to a secured credit card issued by Key Federal.
The Havre de Grace, Md.-based bank, which specializes in secured credit cards, abandoned its own marketing initiatives about a year ago because it was too expensive to compete with the larger card players.
"We are not sweating so much over market share," said Robert M. Bouza, Key Federal's president, credit card services.
Key Federal has forged similar alliances with other financial services companies and affinity partners such as General Acceptance Corp., a finance company that underwrites subprime auto loans.
Both Key Federal and United Companies target the subprime market, comprised of people who have troubled credit histories and do not qualify for traditional loans.
The United Companies credit card is not the first to be tied to a home equity loan, but it is a first in the subprime mortgage business, said Larry Alexander, president of United Credit Card Inc., a subsidiary of United Companies formed about a year ago.
Baton Rouge, La.-based United Companies sees the credit card as a way to generate fee income and build customer loyalty.
The mortgage lender is marketing the MasterCard to people who apply for a home equity loan and sending pre-approved offers to its existing mortgage customers.
Key Federal services and processes the accounts and receives a portion of the fees associated with the portfolio.
The United Companies MasterCard is easier to sell than traditional secured credit cards, said Mr. Bouza, because there is no deposit required. The card is secured by the excess equity of the customer's home.
Moreover, the interest is tax-deductible, and the credit line is larger, as high as $3,000.
Traditional secured cards require a $300 to $500 deposit for the line of credit, which is usually equal to the deposit amount.
While the companies declined to disclose specific numbers, Mr. Alexander said about 40% of United Companies' first mortgage customers apply for the credit card.
By direct mail standards, a 40% return is impressive. Credit card marketers typically get returned applications from between 1% and 1.5% of a direct mail campaign.
The home equity card has a 19.9% interest rate and a $50 annual fee in the first year. Thereafter, the annual fee is $35.
