AT&T Universal Cuts Some Cards' Benefits; Says They're Little-Used

To save costs, AT&T Universal Card Corp. is stripping some of the benefits from its credit card program.

The Florida-based unit of AT&T Corp. said the benefits being discontinued had not been particularly popular and were only being taken away from holders of "classic" cards. Gold card accounts will not be affected.

In a recent mailing, AT&T told some cardholders that it will discontinue rental car collision and loss insurance, buyer protection, and extended warranty benefits Sept. 26.

Another program being cut is safe purchase for college students- insurance against accidental damage or theft for up to four years while cardholders are enrolled in school. That is far longer than the 90-day buyer protection available to nonstudents.

These changes will affect about six million accounts.

"We found that these programs had low usage," said Mitch Montagna, a spokesman for AT&T. The offers were introduced in 1990 and never seemed to generate much interest, he said.

In 1996, for example, fewer than 1% of cardholders filed claims under the buyer protection, rental car collision, and extended warranty programs combined.

"Gold card members value these enhancements more than classic cardholders, who want basic card utility," Mr. Montagna said. Most cardholders were happier with other benefits, like competitive interest rates, he said.

Industry observers said card issuers are trying to figure out how to return to the high profit margins of years past. Given increases in competition and in chargeoff and delinquency rates, excess costs have become a growing concern.

"The irony is that these benefits were originally slated for gold-card holders a number of years ago, then issuers began putting them on nongold products," said Stephen D. Drees, president of Westborough, Mass.-based Strategic Marketing Services.

Mr. Drees said an enhancement that costs the issuer must also add to the returns from a product-perhaps by helping to increase card usage, or in acquiring and retaining customers.

Issuers are trying to determine what they can eliminate that will improve profit margins without weakening them competitively, Mr. Drees said.

Chris Theoharides, president of Advantage Consulting Group Inc., Massapequa, N.Y., said that as a rule, taking away cardholder benefits is bad public relations.

"Consumers don't want to see any benefits eliminated, especially at a time when we are teaching them to expect more and more benefits," he said.

"We sometimes take for granted that these core features and benefits of the card are not all that important to consumers."

Mr. Theoharides said benefits like purchase protection are becoming standard on all credit cards so that AT&T's latest move is likely to get negative response.

Not necessarily, said Mr. Montagna of AT&T. Since sending out the letters, the company has received some calls from people who had questions. But he predicted: "If there are any account cancellations, they will be very minimal."

Mr. Theoharides said he didn't think AT&T's action would cause a domino effect. As issuers explore ways to bolster profit margins, he said, more will seek to cut expenses and add fees.

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