Giving its cardholders a nudge to maintain or transfer balances, AT&T Universal Card Services has lowered interest rates.

The nation's seventh-largest MasterCard and Visa issuer sent letters to a "significant portion" of its 23 million cardholders, alerting them that their rates dropped on average a few points, to 13.85%. The standard rate is 18.15%.

"This is not a promotion or temporary offer," said the letter, which was sent out the week of Oct. 28. "And it can save you hundreds of dollars in finance charges over the next year alone."

In September, the nation's top issuer, Citicorp, reduced interest rates for some of its best customers. Selected Citibank gold cardholders now pay 13.65%, two points less. Classic cardholders pay a tiered rate based on balances - as much as four points lower than the 17.65% they had been paying.

AT&T customers who transfer balances receive an 8.9% rate for under $2,000 and 6.9% for $2,000 or higher.

AT&T said it timed the rate reduction for customers in good standing for the holidays. But observers said it was an effort to retain customers and to build balances because AT&T has routinely been below average.

Robert B. McKinley, president of RAM Research Group, estimated AT&T's average balance is $1,008 compared to the industry average of $2,020.

Twice during David K. Hunt's tenure as chief executive, the Jacksonville, Fla.-based issuer rolled out rewards programs designed to boost the level of balances, without much success.

Now, in addition to trying to stem attrition and build balances, AT&T Universal is looking for a chief executive. Mr. Hunt resigned, effective Nov. 1.

Mr. McKinley said that given AT&T's prominence, the move "should have a ripple effect in the marketplace," prompting some issuers to follow suit. When the company introduced its "no fee for life" program, most issuers dropped annual fees.

The rate reduction comes after General Electric Co.'s card unit came under fire for announcing it would charge convenience users $25 a year if they didn't carry a balance.

"Certainly AT&T is doing this for its benefit," said Ruth Susswein, executive director of Bankcard Holders of America in Salem, Va.

"Maybe at a time when there's been lots of press coverage for penalty pricing, they're looking to be the white hat."

In general, the consumer advocate said, the rate reduction prompted a mixed response. "On one hand, it comes at a great time for people who must carry a balance. On the other hand, it's a curious time for people to add to their debt load."

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