Ruckus Spurring Many Banks To Weigh a Cut in Card Rates

Lawmakers' anger over high credit card rates has evidently gotten through to bankers.

After Congress considered imposing a cap on interest rates last month, more than a quarter of the nation's largest card issuers rushed into meetings to discuss lower pricing, according to a survey by RAM Research U.S.A.

Rate Changes Foreseen

And the respected card research firm has concluded that many banks will follow through with lower rates.

"I really look for rate changes to be announced in the upcoming weeks," said Robert McKinley, president of the Frederick, Md., company.

Mr. McKinley, who publishes a monthly newsletter on credit card rates and fees, began calling the top 200 card issuers Nov. 20 -- two days after the House of Representatives shelved a rate-cap proposal that the Senate had overwhelmingly approved.

Out of 157 institutions that responded, one of four said they were discussing lower rates. Another 15% had scheduled rate-cut meetings before the Senate passed its surprise measure, which would have capped card interest rates at 14%.

The discussions, if they translate into rate cuts, could quell a political and consumer backlash against banks for failing to peg their credit card rates to declines in interest rates generally.

Doing Double Takes

"I'm sure a lot of people did a double take and gut check (during the congressional debate) to make sure what we were doing was right," said John Douglas, head of C&S/Sovran Corp.'s credit card unit. His company made no change.

The average rate on outstanding revolving card balances at the top 107 issuing banks now is 18.18%, down from 18.22% in November and 18.57% in December 1990, Mr. McKinley said. He also noted that 175 issuers now offer cards with rates of less than 15% - up from just 92 a year ago.

It would not be surprising to see a new round of rate cuts early next year, since January and February are always popular months for adjustments. And early 1992, Mr. McKinley predicted, should be especially busy.

Rates will not fall across the board, however. Most issuers planning adjustments expect to tier rates, giving the most attractive prices to their "best" or "lowest-risk" cardholders.

Preemptive Move

First Chicago Corp., the country's third-largest card bank, already has adopted this strategy, cutting its interest rate as of Nov. 1 to 15.5% for its best customers. It defines those customers as people with big balances who pay only the minimum amount due each month.

"I think we will see more creativity and menu pricing," said Collin McKenny, head of credit card operations at Star Banc Corp., Cincinnati.

Star offers rates keyed to outstanding balances that range from 14.5% to 19.8%. Ms. McKenny said the bank has no plan to trim its fixed rates further.

The new banking law does not call for a study of credit card pricing, as had been threatened during the final debate, but many bankers expect the Federal Reserve or another agency to begin a study soon.

Ms. McKenny said she would welcome such a review as an antidote to the unsubstantiated charges being made about bank profiteering.

"It will point out that the cost of funds at the Fed's discount window has nothing to do with the cost of running a card program," Ms. McKenny said. [Graph Omitted]

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