Banc One Subsidiary Offers Card at 13.9%

NEW YORK -- A unit of Banc One Corp. has begun offering a credit card with a 13.9% annual percentage rate.

The move comes amid pressure on banks from legislators and consumer groups to lower interest rates on credit cards in light of rapid declines in funding costs.

Average Rate: 19.45%

Bank One Wisconsin Bankcard Corp. announced the new card one day before the Federal Reserve lowered its discount rate to 4.5% from 5%. However, the rate does not apply to other cards issued by Banc One subsidiaries.

The new card, which is being offered nationwide, sports a rate on revolving balances that is 5.55 percentage points lower than the average 19.45% charged by the nation's 15 largest MasterCard and Visa banks.

It also carries a 25-day grace period and a $25 annual fee, higher than Banc One's standard. Although other low-rate cards have occasionally been offered, they usually have no grace period and high fees.

"We are responding to market demand and giving rate-conscious consumers another choice," said Ray Thayer, chairman of the Milwaukee-based Banc One unit.

The Stage Was Set

Rumblings of a rate war rippled through the industry earlier this year when some issuers, including Wachovia Corp., introduced lower-rate cards.

Wachovia charges a scant 2.9 percentage points over the prime rate, but extracts a hefty $39 annual fee.

A few smaller issuers, such as Citizen's Bank and Trust in Tex., have long offered credit cards at bargain-basement prices. Citizens' interest rate is 13.92%, but the card is offered only to consumers who live near its Baytown headquarters.

The Banc One move is expected to stimulate further competition among bigger banks.

"Citicorp and Chase won't cut their 19.8% rates. But what will sit well with them is offering some type of low-rate option," said Robert A. McKinley, president of RAM Research USA, Frederick, Md.

Citicorp Offering

Citicorp, in fact, offers an alternative-rate card through its Choice unit in Maryland. It carries a $20 annual fee and an annual percentage rate of 16.9% on balances under $1,300 and 14.9% on balances above $1,300. Choice allows a 25-day grace period.

Bank of New York, another big issuer, markets cards with 13.9% annual rates and no fees through its Consumers Edge program. It targets people with many credit cards who want to consolidate their balances. The program offers no grace period, meaning interest accrues as soon as purchases are made.

Bank One Wisconsin fell into the low-rate card business after buying $200 million of card receivables from a Connecticut thrift, People's Bank, that already carried the 13.9% rate.

Rather than convert pricing on the new cards to its existing standards - an 18.0% rate and a $15 annual fee - Bank One Wisconsin decided to go nationwide with the 13.9% product. It has no plans to solicit cardholders for the low-rate product via direct mail, but does expect to pick up cardholders from other Banc One units offering more expensive cards.

"A rate like this should sell itself," said Mr. Thayer, who noted that his bank made the marketing choice with strong input from its corporate parent.

The Wisconsin bank currently has $400 million worth of card receivables, just a fraction of Banc One's $2.32 billion of loans outstanding. The Columbus, Ohio-based company is the nation's 14th-largest issuer.

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