According to RAM Research's 1994 Secured Card Survey more than 400 issuers (mostly credit unions) now offer some kind of secured card product. In 1993 only 120 issuers offered such a product and in 1992 only 35 issuers could be identified. In this special double issue the secured card survey has been expanded to include a number of new national programs for 1994. Major issuers like Bank of America and Wells Fargo now offer secured cards, joining the likes of Citibank, Bank One, Chase Manhattan, and Signet.
The entry of so many players and such big players has forced secured card pricing down. Five years ago consumers typically paid a $25 to $100 application or processing fee just to open a secured card account and forced to pay a high annual fee and much higher than average interest rate. In 1994 application fees have nearly disappeared and annual fee and interest rates are comparable to standard unsecured card rates. For example secured card interest rates now range from 8.0% to 21.90%. Furthermore many issuers offering secured cards now pay above market rates on the deposits held to secure the bank card account, as high as 5.00% per annum.
Truly there has never been a better time to shop for a secured card.
For card issuers extracting profits from secured cardholders is a bit of a challenge perhaps one reason why the industry long viewed the issuing of secured cards as "bottom fishing". A typical secured cardholder maintains a $600 deposit and calls customer service six times per month to check on available credit, balance information or to confirm receipt of the last payment. The combination of a low credit limit (based on the deposit) and heavy volume of customer service translates into puny profits.
Furthermore there is significant risk associated with issuing cards, even on a secured basis, to a consumer with a poor credit record. Payment checks that bounce can place the account 100% to 200% over the credit limit and cardholders with delinquent federal income taxes could generate a garnishment of the security deposit.
Despite the challenge the growth in secured cards will continue. Big issuers turning down 60% or more of their applicants for unsecured cards see the longer term potential of graduating consumers to unsecured credit cards via a secured card program. Like student cardholders, secured cardholders tend to be intensely loyal to a bank offering the first card or a second chance.
The Secured Card Report for 1994 covering about 150 secured card programs, in detail, is now available for just $10 per copy.
