Arkansas has gained notoriety as President Clinton's home state, but those in the credit card industry know it as the home of low interest rates. Usury laws prevent Arkansas banks from charging credit card customers interest rates more than 5% above the federal funds rate. While they decry their status, some Arkansas banks have turned restrictive legislation into a competitive advantage by touting their rates as the lowest in the country.

According to the July-August issue of CardTrak, RAM Research Corp.'s low-rate survey, Metropolitan National Bank of Little Rock, along with Federal Savings Bank of Rogers, offer the lowest credit card interest rate in the national market - 8.40% - excluding banks that Offer introductory rates. Metropolitan National requires a $25 annual fee, while Federal Savings Bank charges $33.

This month Metropolitan National became the third Arkansas bank to peddle its low-rate product in the national arena, but it was Simmons First National Bank of Pine Bluff that put the state on the credit card map in 1992 when its low rate card was the focus of national attention.

"Arkansas banks offer some of the best deals in America," said Dabbs Cavin, manager of Metropolitan National's credit card services. But not everyone knows about the southern state's low rates. Arkansas banks don't invest in advertising, preapproved solicitations, or direct mail.

In 1992, Simmons First National "became the credit card story in the nation," said Robert Dill, Simmons' executive vice president of marketing.

At that time, legislative types were making noise about the high cost of credit cards and an interest rate cap was a hot topic.

When the media discovered that Simmons First National was quietly offering a credit card that undercut almost the entire industry, the bank's phone lines nearly exploded.

Simmons First National stopped accepting out-of-state applications in June 1992, because it was receiving 9,000 calls an hour and 15,000 applications a month.

Nevertheless Simmons' portfolio experienced outstanding growth. In 1991, Simmons had 9,090 credit card accounts with $18.8 million of outstanding balances. By July 1992, the bank was bloated with 32,803 accounts and $187,224 of unpaid balances.

It took two years for Simmons to return to the national arena. Armed with a new telephone system, among other technological improvements, Simmons finally caught up with the backlog of applications and began accepting out-of-state applications in June.

Simmons' cards carry an 8.5% interest rate and a $35 annual fee.

However, not everyone will be eligible for a credit card from an Arkansas bank, because the credit approval process is stringent.

Mr. Cavin of Metropolitan National, said he hoped to approve between 25% and 35% of the applications that come into the bank. He believes such an approval rate is about 5% to 10% lower than the industry average.

Mr. Cavin also said that Metropolitan National can't afford to help consumers establish credit, which would disqualify most college students.

Simmons approves about 35% of applications. "We can afford to be so selective as long as our chargeoffs remain low," said Mr. Dill.

And low they are. In June, only 0.33% of Simmons' portfolio was past due, compared with the industry average of about 3%. And over the same time period, Simmons wrote off only 0.99% of its portfolio versus the industry average of about 4%.

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