Based on industry figures for last year, issuers charging less than 18% grew, on average, more than 11% in accounts and slightly less than 20% in outstandings. In this group the largest gains are being posted by issuers charging less than 16.50%. Bargain rate issuers increased more than 17% in accounts and slightly more than 28% in outstandings.
By comparison, issuers charging an interest rate in excess of 18% realized tiny gains of 1.3% in accounts and 1.6% in receivables.
The net effect is a small but significant erosion in the market share of the issuers clinging to high interest rates. Issuers charging rates above 18% now have a 70.0% share compared with a 73.4% industry share last year.
Early indications for 1992 show the explosion in lower rate credit cards will continue at a much faster pace than last year. Record number of new accounts and balance transfers will accelerate the shift in market share to lower rate cards.
People's Bank (CT) received more than 50,000 applications last month for its 11.50% card. In 1991 the bank averaged 10,000-15,000 applications per month. The surge is largely attributed to People's rate reduction in late January from 13.9% to 11.5% accompanied by extensive publicity. People's has more than 300,000 accounts.
Credit unions, large and small, are also seeing a torrent of new applications.
Pentagon FCU (VA) handled 7,000 applications in February compared to 1,800 last February. Pentagon FCU lowered its interest rate from 14.9% to 12.9%, January 1st. The credit union currently has more than 120,000 accounts and does not charge an annual fee.
America First Credit Union (UT) approved 1,200 applications since the first of the year compared to 550 in the first quarter of 1991. The Odgen based credit union, with 32,000 credit card accounts, currently charges 13.0% but the rate will drop to 12.25% April 1st.
Typically, credit card issuers see a decrease in receivables during the first three months of the year as cardholders pay down card debt incurred during the Christmas shopping season. This year, People's Bank, Pentagon FCU and America First CU say a record amount of balance transfer activity is easily compensating for the annual downturn.
More interest rate reductions are on the horizon.
April 1st marks the beginning of a new quarter and for most variable rate cardholders it is the time for rate adjustments. Wells Fargo says the variable rate for its "Proven Credit" standard and gold cardholders will drop from 15.05% to 14.05%. USAA Federal will adjust its rate to 12.5% from 13.75% on its no-annual-fee standard card and on its $20 annual fee gold card.
Gold card annual fees have dropped, on average, $2.50 in the past twelve months. The average gold card fee is now at its lowest level ever, $31.50.
The average gold card fee is being driven down not by fee reductions but rather by fee eliminations. More issuers are simply dropping the fee all together.
On March 2nd, NBD Bank of Detroit (MI) announced it was deleting the $36 annual fee on its gold card product. NBD now offers consumers in the Midwest a choice of a fixed 16.80% gold card or a variable 12.93% gold card.
In late February Citibank Choice (MD) began test marketing a no-annual-fee VISA Gold card with a very aggressive 15.90% interest rate. If a cardholder incurs a late payment fee twice, Citibank will raise the interest rate to 19.90% for twelve months. If successful the new card will be available to the general public in early 1993.
Oak Brook Bank (IL) introduced a new no-annual-fee gold card at a rock bottom 12.90% rate January 1st. Oak Brook Bank, which issues only gold MasterCards, uses a variable formula of prime plus 4.4% with a 12.90% minimum. The card is the third lowest rate for a no-annual-fee gold card issued on a national basis.
Last year other major issuers showed flexibility on gold fees. Bank of New York introduced an annual fee rebate program which allows gold card holders to wipe out the $25 annual fee by charging at least $4,000 per year to the card. First USA (DE) began soliciting late last year for a no fee VISA gold card with a 16.90% rate. First USA has since spiced up the invitation-only offer with a 1% rebate on balance transfers.
The list of no-annual-fee gold cards in this newsletter is by no means complete. The nation's largest issuers of no-fee gold cards rely heavily or exclusively on direct invitation-only solicitations. Colonial National (DE), First Deposit (NH) and First USA (DE) issue no fee gold by invitation only. First Signature (NH), Primerica (DE) and First Card/FCC (DE) will accept applications from the general public but primarily focus on direct mail solicitations.
Like rates and fees, credit card benefits or enhancements are dropping.
Effective March 1st, VISA Gold is lowering the maximum claim filed under the purchase security program from $1,000 to $500. VISA Gold, Gold MasterCard and American Express recently adjusted coverage under the purchase protection programs to eliminate coverage for lost items. The change was brought on by cardholder abuse and spiraling costs.
First American Bank (VA) is modifying its purchase rebate program on its "First Percent Card". Effective March 1st, cardholders will be limited to a 1% net purchase rebate of $6.00 per month with a $72.00 annual maximum.
Chase Manhattan also scaled back enhancements in January by lowering the common carrier accident insurance to $50,000 on standard cards and $150,000 on Gold MasterCard. Citibank totally eliminated the same insurance from its standard product the first of this year.
Fleet/Norstar (RI) lowered the interest rate for cash advances to 12% for all regular accounts.
First National Wichita (KS) now offers a 1% rebate on balance transfers for holders of its variable 14.82% VISA Gold.
