Key Federal Savings Bank of Owings Mills, Md., has completed an interstate branch acquisition aimed at halting attrition in its portfolio of secured credit cards.

By buying the Rehoboth Beach, Del., facility of John Hanson Federal Savings Bank from the Resolution Trust Corp., Key Federal will be able to move its card-issuing operations into one of the most liberal state regulatory environments.

Maryland, in contrast to Delaware, prohibits some ancillary fees, including penalties for cardholders whose purchases exceed their credit limits.

Sought Loosening

Key Federal, which had $188 million of total assets at yearend 1992, has approached the Maryland legislature three times requesting a loosening of regulatory constraints, but without success.

Robert M. Bouza, president of Key Federal's credit card operations, said that without the freedom to charge an over-limit fee, Key Federal offers one of the more expensive secured cards, with a 21.99% annual percentage rate and $35 annual fee. The thrift has 55,000 secured-card accounts.

Key Federal also offers an unsecured product at a 16% annual percentage rate and $25 annual fee.

Secured cards, which are becoming increasingly popular among both large card-issuing banks and niche players like Key Federal, require customers to set aside a savings deposit as collateral for the credit line.

The product appeals to people who lack credit histories or need to restore their creditworthiness.

"We couldn't adjust the rate by offsetting it with fees," said Mr. Bouza, who plans to add an over-limit fee and lower the interest rates on both secured and unsecured products by early 1994, when the move to Delaware will be complete.

Key Federal will also lower its interest rate for existing cardholders.

"Then we can give lower rates to people who have always been good customers, and who have paid the price for bad customers," said Mr. Bouza.

He said he could not reveal yet what the new rates, and possibly lower annual fees, might be.

Key Federal's attrition problems began about six months ago, with a 15% decline in activation rates among people who have obtained secured cards.

That rate is particularly significant, since secured cards make up 75% of the bank's credit card portfolio.

Through feedback from sales staff and telemarketers, Key Federal discovered that customers were fleeing what they perceived as high interest rates.

"Anyone with a lower rate than ours was getting our customers," said Mr. Bouza.

Pioneer in the Field

He noted that the low-rate policy of Signet Banking Corp. of Richmond, Va., had a particularly strong impact on Key Federal's portfolio.

Key, a secured card pioneer that introduced the product in 1982, plans to keep a portion of its credit card operation in Maryland.


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