Orchard Federal Savings Bank is hoping to profit from other banks' stiffer underwriting criteria.
The Ontario, Ore.-based thrift has launched a secured credit card targeting people with weak credit histories.
As personal bankruptcies and delinquencies soar and banks lend more cautiously, Orchard sees an opportunity to grow by attracting customers that other lenders are backing away from.
The subprime market is not new to Orchard Bank, which specializes in secured cards, but chairman and chief executive Irving J. Levin said the new Arbor card is easier to qualify for.
It is also more expensive.
A $49 annual fee and $49 processing fee are required. Orchard's standard secured cards do not come with a processing fee, and the annual fee is either $35 or $45.
The Arbor card is priced for increased credit risk, said Mr. Levin. Applicants may have lower incomes than traditional customers or they may have had a bankruptcy. The minimum deposit needed to secure the line of credit is $200, compared with the $400 Orchard normally requires.
"Credit is much harder to get today, given the huge flow of bankruptcies," which creates a market for the card, said Mr. Levin.
Mr. Levin said that as the trend toward tightening continues, the subprime market will heat up, driving up the cost of such credit.
The Arbor card is the product of a partnership between Orchard Bank, Portland, Ore.-based Renaissance Bankcard Services, and other vendors that provide advertising and customer service support. Renaissance will provide card processing.
"We have gone a step further by making the vendors partners. We share more of the upside and downside together," said Mr. Levin.
The Arbor card venture caps off a successful year for Orchard Bank. According to RAM Research Group, Orchard's 1996 receivables grew 45% to $114 million and its charge volume increased 61% to $159 million.
Mr. Levin attributes at least 50% of the growth to Orchard's year-old cobranded card with health club operator Bally Total Fitness of Chicago, formerly Bally's Health and Tennis Corp.
Orchard also issues Montgomery Ward's secured credit card.
Mr. Levin said Orchard's growth is also due to its aggressive efforts in converting secured card accounts into unsecured cards.
Typically, Orchard increases the credit line of a secured account once it is converted by 50% to 100%, which generates receivables growth, said Mr. Levin.
