During the last few days of May, Rocky Mountain Bankcard System (CO) and Norwest (MN) not only sliced a few percentage points off the interest rate for good cardholders they also added special incentives and/or policy changes to spice up their VISA and MasterCard program.

From a consumer perspective, each new program announced is an improvement on the previous one !

On May 26th, Rocky Mountain Bankcard System announced a new 15.90% fixed interest rate for most of its cardholders. (Current rate is 18.60%). according to the bank, approximately 75% of RMBS cardholders will qualify for the new rate since the only requirement is a record of timely payments for the previous twelve months. The lower rate will apply to standard cards and gold cards.

Unlike the Citibank program, Rocky Mountain will apply the new rate to existing balances and not just new purchases. Also monthly minimum payments will drop from 5% to 3% and the $12 annual fee will be waived for two years if a cardholder transfers a balance of $1,000 or more from a competitor's card.

The price adjustment is very competitive since RMBS is prohibited under state law from charging an over-limit fee, late payment fee, or cash advance fee. Furthermore the $12 annual fee is well below the industry average of $17.

The only drawback for consumers is the 21% interest rate Rocky Mountain will continue to charge for cash advances. The drop in the minimum monthly payment by 2% could also be a drawback for financially tight consumers as it encourages piling on more debt.

Overall the Rocky Mountain program is the best, new program adopted by a major issuer. The new rate structure will take effect sometime in July.

RMBS ranks among the nation's top fifty issuers with nearly 1 million accounts, 1.5 million cardholders and $1 billion in receivables.

On May 21st, Norwest said it is switching to lower variable rates for responsible cardholders, effective June 1st. The bank defines "responsible cardholders" as those having no more than two slow payments in the last 12 months and no 2-cycle delinquencies in the last 12 months. Qualifying cardholders cannot currently be delinquent or over-limit and must have charged at least $1,000 in purchases on their Norwest card during the past year. According to Norwest, approximately 70% of its 1.4 million cardholders will qualify initially.

Norwest's new variable rate for standard cards is Prime +9% or 15.5% and Prime +7.4% or 13.9% for gold cards. For a limited time, cardholders qualifying for the new rate can also get a low 12% rate on balance transfers from other cards. Up until now the most common rate charged by Norwest was 19.80%.

While the Norwest program is a little more restrictive than Rocky Mountain's, the bank is launching a 1% purchase rebate program for all of its cardholders, July 1st. Furthermore Norwest will tolerate up to two slow payments per year before penalizing cardholders with a higher interest rate.

The downside to the new program is the variable interest rate and the sliding scale for the purchase rebate program. A variable rate of 9% over prime may sound appealing but if the economy overheats and the prime rate hits 11% or more, this card would become very unattractive. Like Sears' Discover card, the Norwest rebate program rewards heavy users only. To qualify for the full 1% rebate cardholders are required to charge at least $6,000 annually or about three times the average cardholder charge volume.

Norwest has approximately $2 billion in outstandings and ranks among the nation's top 25 issuers.

Other evidence the interest rate war is spreading:

BayBank (MA) will drop its rate from 17.46% to 14.90% on June l5th. Citizen's Financial (RI) is dropping its rate from 16.90% to 15.90%, June 1st and is introducing a new no annual fee card with a 14.50% interest rate. The new Citizen's Financial card does not offer a grace period and is available to residents of Rhode Island, Massachusetts, Connecticut and New Hampshire. Central Bank (MO) says it will drop its 19.80% rate in August and offer rates between 15.15% and 17.90%.

    HOW BIG ISSUER RATE REDUCTIONS COMPARE 

            Interest Rate

  Amex Optima  P+ 6.0% or 12.50%
  Fleet        P+8.4% or 14.90%
  Rocky Mt.    15. 90% fixed
  Norwest      P+ 9. 0% or 15. 50%
  Citibank     P+9.4% or 15.90%

As a result the average interest rate paid on a bank credit card will drop to 18.20% within the next six weeks from it current level of 18.52%.

Given the current trend it is most likely average rates will plunge below 18.00% before the end of this year. If this pans out bank credit card rates will be at their lowest level in nearly fifteen years. The straight average or unweighted average of 17.60% is already at the lowest level in eleven years. According to the Federal Reserve the unweighted average in 1980 was 17.31 %.

Recently a consumer group criticized the bank credit card industry for using "gibberish" to explain methods of calculating interest on credit card balance. However the Truth in Lending Act card clearly and concisely defines the six methods used by issuers. By far the most common method (87%) is the average daily balance including new purchases formula.

A few issuers, notably Sears' Discover card, employ the two cycle average daily balance including new purchases method, the least desirable formula.

Assuming a cardholder pays a 19.80% rate, charges $1,150 in the first month, $200 the next month and makes the required minimum payment of $46 in the second month, the finance charge would range from $18.22 to $36.84 depending on the method used.

ADJUSTED BALANCE: $18.22

AVERAGE DAILY BALANCE
(excluding new purchases):  $18.71

PREVIOUS BALANCE:  $18.97

AVERAGE DAIL Y BALANCE
(including new purchases):  $20.11

2-CYCLE AVERAGE DAILY BALANCE
{excluding new purchases):    $35.44

2-CYCLE AVERAGE DAILY BALANCE
(including new purchases):    $36.84

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