CardTrak - Bank Credit Cards Tumble to Ten Year Low

Bank Credit Cards Tumble to Ten Year Low
From the January 1992 Issue of CardTrak

For the first time since 1981, average bank credit cards have plunged below the 18.00% level. The January average of 17.95% is down from last month's 18.18% and well below last January's 18.42%.

In the past twelve months there has been an explosion of bargain VISA and MasterCards. This month there are 228 cards (an industry record) with interest rates under 15.00% compared to 105 cards in January 1991. Never before have consumers been given so many bargain rates to choose from. Incidentally, this figure does not include credit union cards or closed/limited affinity programs.

 
             BARGAIN CARD EXPLOSION

      A.P.R.         Jan 1991       Jan 1992 

      Under 9%         0              8   
      9% < 10%         0              7                  
      10% < 11%         0              7
      11% < 12%         8              9
      12% < 13%        11             19
      13% < 14%        23             41
      14% < 15%        63            137

       Total           105            228

Have bankers taken the cue from politicians to cut credit card interest rates ? Is the industry responding to the signals being sent by cardholders switching to lower rates ?

A few issuers have responded with lower fixed rates, however this month's sharp interest rate drop is directly linked to recent actions taken by the Federal government. The Feds have lowered the discount rate 1.5% since October 1st. As a consequence, the prime rate has fallen from 8.0% to 6.5%.

75% of VISA and MasterCards issued in the U.S. have fixed interest rates. The remaining quarter have variable rates with three out of four based on the prime rate. Since most variable rate adjustments are made quarterly, the 1.5% drop in the prime rate during the final months of 1991 is reflected in the January rates.

 

    BANK CREDIT CARD PRICING BREAKDOWN

  Brand & Pricing Structure     Number of Cards
  VS/MC Fixed A.P.R.            177 million
  VS/MC Variable A.P.R.         60 million
  Discover Fixed A.P.R.         40 million
  Optima Variable A.P.R.         3 million

  TOTAL U.S. CARDS:             280 million
  TOTAL VARIABLE/FIXED:         63 million/217 million

A few fixed rate issuers have changed rates, introduced new lower rate products or expanded promotion of existing lower rate cards.

Citibank has changed its "Choice" pricing from a tiered rate (16.90% for first $1,300; 14.90% above $1,300) to a fixed 15.90% rate. United Missouri recently announced a new 14.50% card and Commerce Bank (MO) introduced a 13.90% no-fee card. First National of Omaha will start promoting its 14.90% "State" card more heavily than its 19.80% "Platinum" card.

Based on current industry feedback, it is very likely one of the nation's top ten issuers will make a major price move soon. U.S. card issuers are enjoying the widest spread between cost of funds and card rates in fifteen years while the growth in delinquencies and bad debt is slowing. However the single most compelling reason for a major rate change is the rising tide of cardholders switching to lower rates.

There will be a proliferation of bargain rate credit cards in 1992. Even consumers with marginal credit histories will have more choices as major issuers enter the secured card arena.

You can take advantage of this bonanza now and cut your credit card costs by one-third to one-half by simply picking up the phone and calling the issuers listed inside this newsletter.

 
      BANK CREDIT CARD RATE HISTORY

  YEAR           A.P.R.          PRIME        SPREAD

  1976:          17.16%         8.00%         9.16%
  1977:          17.16%         7.00%         10.16%
  1978:          16.89%         7.00%         9.89%
  1979:          17.03%         9.50%         7.53%
  1980:          17.03%         13.00%        4.03%
  1981:          17.31%         15.50%        1.81%
  1982:          17.78%         19.00%        -1.22%
  1983:          18.51%         15.00%        3.51%
  1984:          18.78%         11.00%        7.78%
  1985:          18.77%         12.00%        6.77%
  1986:          18.70%         10.00%        8.70%
  1987:          18.73%         8.00%         10.73%
  1988:          18.03%         8.75%         9.28%
  1989:          18.09%         10.50%        7.59%
  1990:          18.42%         10.50%        7.92%
  1991:          18.42%         10.00%        8.42%
  1992:          17.95%         6.50%         11.45%

A.P.R. is average interest rate (unweighted) charged by nation's largest issuers ($100+ million in receivables). Prime Rate is the rate in effect on January 1st of each year. Spread is amount the A.P.R. exceeds the Prime Rate and is a rough indicator of the profitability of credit card loans. 1975-85 data from Federal Reserve.

First Bank System (MN) is offering a VISA gold card with an interest rate based on the cardholder's credit risk. The interest rate varies with the amount of credit line granted to an applicant.

For credit limits under $10,000 the A.P.R. is prime +3.96%, for limits greater than $10,000 the A.P.R. is just 2.96% over prime or 9.46%. Rates are adjusted monthly. There is a $20 annual fee and no grace period. Minimum household income required for the program is $35,000. For more information call First Bank Systems at 1-800-223- 3723.

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