Rate Strategies, High or Low, May Be Put to a Test

Over the last 20 years, Simmons First National Bank of Pine Bluff, Arkansas has built a well-known bank card franchise with more than 100,000 customers without a single speck of marketing effort. No direct-mail solicitations, no television ads, no statement stuffers.

What's more, the number of card customers continues to grow, and the bank receives inquiries and applications for new cards almost daily from people throughout the nation. How are customers finding out about this $603 million-asset institution? The answer is free publicity.

Simmons offers the nation's best deal on a consumer revolving credit card account. A $25 membership fee, a 10.5% interest rate, and a 25-day grace period have kept the Simmons card at the top of most consumer groups' lists of cheap credit. Because of all the publicity, nearly half of the bank's customers are from outside Arkansas.

High Rates Helped

When interest rates nationally began to soar in the mid-1980s, so did Simmons' popularity, said Roland Getchell, vice president in charge of the bank card division for the bank. After being profiled in popular consumer magazines such as Money and Changing Times, applications poured into the bank.

But Simmons never set out to offer the lowest interest rate in the nation. It only offers the rate because of an unusual state regulation.

Arkansas has a usury law that prohibits banks from charging customers more than 5% over the Federal Reserve's discount rate. When the law was enacted in 1982, many of Arkansas banks dropped out of the card business. Today, most of Arkansas's banks offer cards to customers through Simmons' operation. Needless to say, Simmons makes a tidy profit on that business.

And it does pretty well with its own card as well. The card portfolio represents 16% of the bank's assets, and losses are very low.

Access Not Easy

Although the accounts are cheap, they're not easy for consumers to get, said Mr. Getchell. He said the bank has to work hard to be profitable, so lending standards are tough. Fourteen employees work in the bank's credit department reviewing applications. Applicants must have a minimum income of $1,000 a month, a good credit file, and must not be "overburdened with debt." The average line of credit granted is only $1,000.

These protective efforts leave Simmons with losses of less than 1% in its portfolio, compared to the industry's average of 4%.

And to keep the cost of operations down, Simmons keeps its operation bare-bones simple. The accounts are not tied to deposits and the bank does not offer secured cards. "We try to help everybody who applies," Mr. Getchell said. "But the credit quality and payment record have to be there to justify approval."

Mr. Getchell said Simmons remains committed to offering the low-cost cards. "Credit cards will be a viable part of our whole operation for the foreseeable future," he predicted.

PHOTO : HARD TO GET: Simmons turns down many card applicants.

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