Consumers' sensitivity to interest rates and their personal debt loads may be slowing the growth in credit card loans.

A midyear survey by RAM Research Corp. shows the annual growth rate for outstandings is 4.2%, compared with last year's 9% level. But card-spending volume is up 9.8%, which is nearly consistent with last year's rate.

The Frederick, Md., researcher's study covers the portfolios of 300 credit card issuers, representing 85% of the industry, and weights the results according to market share.

"I think it's disappointing," Robert B. McKinley, RAM president and chief executive officer, said of the growth trends. "We're running way below where we should be."

He added, however, that he expects the receivables growth rate to rise to to 8% by Christmas.

Growth was flat at most of the top 10 credit card issuers, but Mr. McKinley noted a few bright spots. Household Bank outstanding grew 20%, Bank of New York's grew 10% and AT&T Universal Card Services grew 8.3% in the first six months.

"Those are very strong increases," Mr. McKinley said. He attributed Household's growth to the success of the General Motors card that it issues.

Bank of New York, meanwhile, modified its pricing, he said, and stepped up marketing on its low-rate Consumers Edge card. And the sheer size of the three-year-old AT&T program aided its growth.

He said that AT&T ranks second in accounts and volume to Citicorp, but ranks seventh in outstanding loans, with $7.2 billion. But the card issuer had solid increases for the first half of the year, he said, doing a good job of getting customers to revolve their balances, and to switch from other issuers.

Trying to Outbid Competition

Mr. McKinley found that issuers remain aggressive in pricing, trying to outdo each other with reduced-rate programs. The average annual rate for a standard card stands at 17.25%, down from 18.22% a year ago. Gold card rates dipped less than a percentage point, to 16.08%.

"You're seeing a lot of those single-digit promotional rates," Mr. McKinley said. "And there's no indication the interest rates are going to rise."

Big banks have been aggressive with promotional rates this year to compete with smaller issuers, he said. As a result, attrition has slowed.

Two Basic Strategies

In general card issuers have been keeping with two strategies, Mr. McKinley noted: cards at 16% to 17% interest rates with enhancements; or more basic packages at 14% or below, often with single-digit promotional rates.

But issuers pay a price in lower profitability for their aggressive pricing and marketing.

Despite the reduced-rate plans, Mr. McKinley said consumers are not piling up credit card loan balances as they once did.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.