American Express announced on February 5th a new innovative pricing schedule for OPTIMA cardholders, effective early June. Established cardholders with excellent payment records will pay a 12.50% interest rate. Other cardholders will pay a 14.75%, except for delinquent or "bad" cardholders who will have to cough up an 18.75% interest rate.

Chemical Bank, in the process of a merger, is lowering the rates on Manufacturer Hanover Trust's account by two percent. Effective March 1, standard MHT cards will drop from 19.80% to 17.80%. Gold MHT cards will also drop from 17.80% to 16.80%. Chemical's accounts will continue with existing variable, prime-rate-based, pricing.

This is pretty aggressive stuff !

American Express, the nation's seventh largest bank card issuer, based on outstandings, is now offering a rate to its best cardholders that is among the lowest in the nation. The only top ten issuer offering a lower rate is Bank of New York with its Consumer Edge VISA now at 11.90%.

Chemical Bank, now the nation's eighth largest issuer, is the first top ten issuer to break ranks, retreating from the entrenched interest rate of 19.80%. Seven of the top ten continue to charge a primary rate of 19.80%. Will another top ten issuer slash rates ?

Yes. If what we're hearing pans out, at least one more top ten issuer will be making an announcement before the end of this month. Logically other top ten issuers will follow. By the end of this year a 19.80% card rate may be the exception instead of the rule.

Don't look for issuers to cut interest rates for all cardholders. Other major issuers may adopt the Amex strategy: retain your best cardholders with an aggressive rate, attract new accounts with a competitive rate and penalize trouble cardholders with higher rates. This makes sense and cents. Good cardholders no longer feel they're subsidizing the bad risks and theoretically the issuer should be able to maintain the same profit margin on all accounts.

Some issuers are indirectly segmenting cardholders by offering new products with much lower rates while retaining a high primary rate. Creditworthy cardholders threatening to switch to another issuer are offered the lower rate. This strategy has worked so well for some issuers they've adopted menu pricing, with something for everyone.

The new Amex pricing strategy may also produce another trend in the industry. In the past few months, suits have been filed in Pennsylvania and Massachusetts challenging credit card fees, particularly late payment fees, charged by out-of-state issuers. If more suits erupt, issuers may simply eliminate the fees and charge a higher interest rate for delinquent accounts.

In 1988 Primerica Bank was sued by Iowa over high card fees. Primerica settled the suit in 1989 by dropping the fees and introducing a tiered interest rate for "good" and "bad" cardholders. Primerica charges Prime +8.75% (or 15.25%) for good cardholders and Prime +15.95% (or 22.45%) for bad cardholders.

                Feb 92         Jan 92         Feb 91
A.P.R.

Weighted:       18.66%         18.68%         19.10%
Unweighted:     17.91%         17.95%         18.61%

ANNUAL FEE

Weighted:       $17.32         $17.32         $17.40
Unweighted:     $16.65         $16.66         $16.82

Central Fidelity (Virginia) also announced on February 4th a new 15.60%/$20 standard card. Central Fidelity's primary pricing is 18.00%/$15.00.

Three other major issuers will be introducing new products or modifying pricing structures March 1st.

Simmons Bank of Arkansas jacked up the annual fee for out-of-state cardholders to $35 from $25. Due to recent media attention, Simmons has been receiving nearly 25,000 calls a day for applications, mostly from out-of-state consumers.

Clearly there are many ignorant consumers dialing Arkansas banks in search of 8.5% credit card rates. What most consumers do not realize: there is very little chance of qualifying for the low 8.5% rates and an even smaller chance they'll be able receive a credit line large enough to consolidate or transfer an old card balance.

Approximately 80% to 90% of out-of-state applicants will be rejected for an 8.5% Arkansas card. Initial credit lines average about $800 and rarely exceed $1,000. Coupled with an extremely high annual fee of $35, Arkansas cards are hardly a bargain. With a $1,000 average daily balance the effective interest rate is 12%.

Consumers have a much better chance of qualifying and receiving a sufficient credit line by shopping in the 10%-14% rate range. Besides it won't take forever to get an application and an eternity to get approved. This issue lists eighty cards in the 10% to 14% range most with 800# phone numbers and most without busy signals.

American National Bank of Larchmont, New York, a national secured card issuer, was taken over by the FDIC in late January. At press time it was unclear as to the future status of American National's secured card accounts. One thing is certain, no new accounts will be accepted.

If you are looking to transfer a credit card balance from high rate cards to a low rate card ask before you leap.

Some issuers require you to take a cash advance and pay a fee in addition to paying interest. Other issuers will go out of their way to make a balance transfer painless and feeless. Some will even pay off your old card for you and give you a 25-day interest-free ride on the balance. Broadway National Bank in Texas goes one step further by offering a 1% rebate for balance transfers.

Here is a brief list of issuers offering a 25 day grace period on balance transfers:

First Commerce (Louisiana)

U.S. Bank (Oregon)

First Constitution Bank (Connecticut)

National Bank of Alaska (Alaska)

First Security Bank (Utah)

First National Marquette (Michigan)

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