Consumers finally are beginning to see some downwar movement in credit-card interest rates as competition builds among card issuers.
"Competition is definitely heating up," says Gail Liberman, editor of Bank Rate Monitor, a weekly newsletter. "What's happening is that a number of banks are coming out with additional credit cards that are aggressively priced."
Robert McKinley of Frederick-Md. based RAM Research, a credit-card tracking service, believes pressures will mount on the nation's top 10 card issuers to trim their rates before year's end.
The top 10 issuers, which control over half the market, have kept interest rates above 19 percent despite the fact that other rates have fallen substantially. As a result, the gap between what banks charge consumers for loans and what they pay savers has widened. For example, MBNA America, the credit-card unit spun off by MNC Financial and one of the top 10 card issuers, has a 19.8 percent annual rate for a standard credit card and pays 6.1 percent for a one-year certificate of deposit.
Until now the big issuers have competed on the basis of enhancements, such as rental car insurance, purchase and price protection plans.
"They're going to cut the rates," McKinley says.
"It might be small at first, maybe from 19.8 to 19.3. But when you're looking long term, maybe over two years, you might see those 19.8 rates pulling back to 18 percent. That's where they were in the 1970s."
According to Bank Rate Monitor, the current average annual rate for a fixed-rate standard credit card is 18.95 percent.
McKinley cites recent moves by issuers among the top 50 as evidence that competition is beginning to focus on rates. Among the moves:
* First Wachovia, also known as First Atlanta, changed its name to Wachovia Bank and unveiled a new variable rate card at the prime rate plus 2.9 percent, which puts the current rate at 11.40 percent. But the annual fee is high, McKinley says - $39 for a standard card, $49 for a gold card.
* Chemical Bank switched from a fixed to a variable rate, chopping costs on all its products. Card holders who were paying 19.5 percent are now paying 18.4 percent and those in a special bank program saw their rate drop to 16 percent.
* First USA of Delaware is promoting a Visa Gold Card with no annual fee and a 16.9 percent interest rate.
* National Westminster of New York lowered its Visa Gold rate from 16.8 to 15 percent.
* Commerce Bank of Omaha cut its whopping 22 percent rate on standard cards to 19.8 percent.
"You rarely see movement among these big issuers," McKinley notes. "You're going to see a lot more bargain cards offered."
"The move by Chemical Bank was pretty surprising," comments Liberman. "That's the first instance where I have seen a large institution lower its rate to existing customers."
American Express, meanwhile, has been running full-page ads contrasting its Optima card's lower rate to the 19-plus percent charged by the top 10 issuers - in preparation, McKinley predicts, for mass marketing of the Optima card, possibly later this year.
Optima's variable rate recently fell from 16.25 to 15.75 percent for American Express card holders, who pay a $15 annual fee. But non-card holders can get an Optima card for $25 and a half-percent higher interest rate.
In addition, AT&T;'s variable rate Universal Card, which has signed up 10.5 million members in the 15 months of its existence, recently cut its rate by a half point - to 17.4 percent for charter members, and to 18.4 percent for those who signed up after March 26.
As more large non-bank companies like AT&T; jump into the credit-card business, competitive pressures will only increase, McKinley says.
Ford, for instance, announced in the past several weeks a no-fee Visa or MasterCard issued though its Delaware subsidiary, Associates National Bank, with a promotional 15.9 percent annual rate. The Ford card, like Sear's Discover card, pays cash rebates on a sliding scale. The rate, however, is scheduled to jump to 19.8 percent in January.
Sears, meanwhile, is engaged in a court battle with Visa USA over its planned no-fee Prime Option card, to be issued though its Utah subsidiary, MountainWest Financial. Plans call for it to offer consumers a choice between a variable rate pegged to the prime or a fixed rate. Visa, pressured by its mostly bank members, is fighting to keep Sears from issuing a card, but McKinley predicts Sears eventually will prevail.
And General Motors, said McKinley, apparently has reached an agreement with Ohio's Banc One to issue affinity Visas and MasterCards.
Bank Rate Monitor's Liberman says that some issuers, particularly No. 1 Citicorp, are resisting pressures to cut interest rates.
"For the most part consumers are going to have to switch their credit cards" to take advantage of the lower rates, she says.
enough consumers do that, she adds, that could pressure some of the holdouts to reduce their rates, too.