Card Prices Respond to Choosy Customers

There are more ways to structure credit card pricing than there are ways to skin a cat. Neither activity, incidentally, is popular with the general public. But in the case of credit cards, consumers who protest high interest rates and annual fees are not realizing two things: that issuing credit cards is an expensive business, and that there is a wide and growing range of rates, fees, and features out there to choose from. There are cards with low interest rates and high annual fees. There are cards with no annual fee and high rates. There are cards that have low interest rates and no grace period. There are cards with low rates and a high level of rejected applications. There are cards that have rates and/or fees tied to number of relationships. There are cards that have rates tied to the Wall Street Journal prime or to the Federal Reserve's discount rate. Bankers interviewed for this article offer these and other features in their bank card plans; in most cases they have offered them for a long time. Few have made or plan to make any changes to their prices directly because of the publicity that stemmed from President Bush's comment last November that he would like to see credit card rates come down and the ensuing brouhaha over the rate cap proposed by New York Senator Alfonse D'Amato. Rate awareness. On the other hand, many bankers feel the rate cap melo-drama did feed customer sensitivity to rates and fees. In some case, this was because of misleading news reports. For example, local news media in Washington State reprinted Associated Press articles saying that the national credit card interest rate was 18.6%. The state average is much lower (around 15%), according to Roy Jacoby, senior vice-president and head of the Visa department at Puget Sound National Bank, Tacoma. We've had people call us and say they didn't think the credit card rate was fair, says Jacoby. We asked them what they did think was fair and they said 14%. It turned out that that was what they were paying, he says. Greater consumer awareness of rates has affected some banks in the form of increased response to low-rate products and others through loss of acounts to lower-rate competition. Since Wachovia Bank (Winston-Salem, N.C.) introduced its Prime Plus variable rate card (prime plus 2.9%) last April, calls to the bank's toll-free credit card application number have been increasing every month, especially last November, says Ray Costner, senior vice-president. Wachovia already had two fixed-rate cards, one at 14.9% and another at 17.9% (with two different annual fees). Costner says that some customers have stayed with these fixed-rate products because they are afraid that the prime will go shooting up again. A similar experience happened to $35-million-assets Cowlits Bank, Longview, Wash. The bank had been offering standard and gold cards with a 13.925% fixed annual percentage rate for a year and a half when in November a tv program listed it as one of the lowest-rate card issuers in the country. About 100 people called the bank in the first two hours after it opened the next morning, according to Cheryl Lynch, loan officer and credit card supervisor. After processing some of the requests that first day, the bank decided it would only offer cards to residents of Oregon and Washington, because we don't want a large volume and a large collecting base; two people, one of them Lynch, handle all credit card requests. The lowest rate issuer in the country, Simmons First National Bank, Pine Bluff, Ark., received 9,000 applications during the month of November. It is the only commercial bank card issuer in the state of Arkansas, which has a constitutional amendment that enforces a rate cap of 5% over the Fed discount rate. Another example of a popular low-rate card is Bank of New York's Consumers' Edge card, introduced in early 1990. …