Like lemmings near a cliff, bank card issuers sometimes seem to fall over each other with reduced-rate plans. But it remains to be seen just how many cardholders benefit, and how many banks will suffer.

The best of the new deals are typically being offered to consumers with spotless credit histories and little outstanding debt - those who present the least risk to issuers.

People who stand to gain the most from lower rates - active card users who regularly revolve their balances - do not qualify for many of the heavily publicized pricing cuts.

"It is quite possible that the bulk of the lower-rate cards will be offered to only 20% to 30% of the population," said Stephen Szekely, a vice president at Payment Systems Inc., Tampa, Fla. "If that is the case," he said, the interest rate war "will have very little real effect on the industry."

A Slight Tapering Off

To be sure, banks have lowered their card rates during the past year. The average annual rate now stands at 18.22%, compared to 18.96% one year ago, according to Ram Research Corp.

The Frederick, Md.-based firm surveys more than 500 issuers, representing more than 93% of the industry, and weights the results according to market share.

But the drop in the average is helped by several programs that offer low rates only to limited segments of the customer base.

Citicorp, for example, offers a performance-based pricing structure with a relatively low rate (currently 15.9%, as opposed to its standard 19.8%) only to customers who have consistently paid their card bills on time.

Citicorp said that roughly one-third of its 27 million card-holders qualify for the lower rate.

That is a surprising high percentage; critics say it is deceptively high.

Convenience Users

"When Citi talks about nine million people who will qualify for their lower rates," said Elgie Holstein, director of BankCard Holders of America, it seems "to leave out any discussion of what percentage of that nine million represent convenience users who are not generating any interest income in the first place."

Convenience users pay their card balances in full each month to avoid finance charges.

Consumer advocates also charge that banks are confusing customers by not making clear exactly who qualifies for the lower-rate programs. They also complain that many of the new plans carry floating rates, with repricing schedules that are difficult to compare. Some reprice monthly, some quarterly, and some twice a year.

Indeed, to the surprise of some consumers, most "lower rate" cards adopted over the past few months do not reflect the one-half percentage point drop in the prime on July 2.

Waiting for a Drop

"Even though rates have gone down right now, it can be a pretty long time before your card rate goes down," said Anne Morgan Moore, president of Synergistics Research Corp., Atlanta.

Bankers respond that the cuts are real, noting that the rate was are beginning to erode the profitability of their card portfolios.

"Most people feel that margins will be more narrow than they were in the 1980s," said Kenneth Keck, who heads the bank card department at Harris Bank in Chicago. "And that is a direct result of lower rates." Harris is getting ready to notify select customers of a rate cut of 3 percentage point.

Performance-based programs, meanwhile, are being lauded by some consultants as a responsible way for banks to respond to calls for lower rates without sacrificing their business goals.

"A commonsense approach to the problem is to say people that are higher risks will pay higher rates or go without credit cards," said Mr. Szekely.

Indeed, bankers say they must continue to charge these card-holders annual rates of about 19.8% because of the risk of delinquencies and bankruptcies.

Ironically, those high-risk customers are also the ones most valuable to card issuers, since they regularly revolve their balances and are the ones least likely to complain about high rates.

Ms. Moore said that card-holders who revolve high balances may well prefer the higher-rate cards because they tend to carry bigger credit lines than the discounted models.

She also adds a practical note. Many of these consumers will not bother to apply for lower-rate cards, on the correct assumption that they will be turned down, she said.

Mr. Szekely of Payment Systems said it is too early to assess the impact of the rate wars on bank profitability.

Institutions that simply switch to a variable structure may not be affected as all, since they are just changing their pricing to reflect a drop in their cost of funds, he noted.

"Some banks will offer lower-rate cards to everyone - and yes, they will get burned," Mr. Szekely added.

"But it will be a year or two before the dust settles and we will know if the industry will target low-rate cards across a broad section."

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