Back in 1990, after his heart attack, Robert M. Bouza built a cathedral.
The Cathedral of Notre-Dame de Paris, to be exact. It took 242 hours -- he counted -- to assemble the paper and cardboard replica's 6,750 pieces. And it didn't help that the instructions were in French, which he doesn't speak.
That kind of perseverance and attention to detail also have helped the New York native build one of the nation's most successful secured credit card programs, at Owings Mills-based Key Federal Savings Bank. From his 105-employee card processing center in Havre de Grace, Mr. Bouza now spends much of his time preaching the gospel of the once-disreputable secured cards.
The fast-growing niche of secured cards seems like a financial gimmick: A consumer gets a credit card with a $500 limit by depositing at least $500 in the bank. But for people with poor or limited credit histories, such cards offer a way to develop a reputation as creditworthy consumers -- and to enjoy the convenience of charging purchases.
Unfortunately, secured cards have spent years in a dank cellar of the nation's house of credit cards. Sleazy ads, outrageous application fees and notorious failures among some early issuers made secured cards an industry pariah.
Mr. Bouza remembers one odious deal: "One bank had a 900 [telephone] number that cost $49.95 for the call. Then the caller was referred to another 900 number for $29.95." Eventually the company folded, and customers lost their deposits.
Despite such problems, the secured card business has flourished -- the number of accounts nationwide increased from about 400,000 to almost 600,000 in the past year. Key Federal has about 70,000 accounts.
And industry trends could help sustain that growth. MasterCard International Inc. and Visa USA Inc. have spent the last two years cleaning up their end of the industry: cracking down on fraudulent issuers by banning 900 numbers, tightening registration requirements and scrutinizing advertising claims.
In a month or two, MasterCard will launch an ad campaign to promote "the legitimacy of [secured cards], the fact that the industry has been cleaned up," says Jeanette M. Williams, vice president for new marketing development at MasterCard.
All of this is fine with Mr. Bouza, whom Key Federal hired away from the credit card division of New York's Chemical Bank in 1982, when the secured card industry was in its infancy.
There's just one thing he wants applicants to know: A secured card can't erase a bad credit history, it can only help a consumer build a healthy new one.
Holders of Key Federal's cards pay for that privilege. The basic card costs $35 a year, and the annual financing rate is 21.99 percent, higher than most credit cards.
Mr. Bouza notes, though, that the secured deposit account earns either 4 percent or 4.5 percent a year, depending on whether it's under or over $1,000. That's well above the typical bank savings or money market rate (although lower than some other secured card issuers, including Signet Bank).
The fees and high interest rates allow banks to cover added risks from secured cards.
Losses on secured cards are higher than those on unsecured cards, even when customers' deposits are considered. Issuers can lose if cardholders exceed credit limits by making purchases at service stations and other locations that don't verify the card with each transaction.
Many secured issuers also allow cardholders who keep up with their payments to increase credit limits gradually without increasing their deposits. Key Federal's $37 million in secured deposits have a total of $50 million in credit lines, which means Mr. Bouza has extended $13 million of unsecured credit.
"We want to hold onto those customers, not have them leave in three years," he said.
Until recently, when growth dropped to about 5 percent, Key Federal's card business was increasing by 15 percent a year -- a pace Mr. Bouza hopes to regain.
Ms. Williams estimates there are almost 90 million Americans who could use a secured card. They either have no credit -- because they're young, new immigrants, or recently widowed or divorced -- or have poor credit records.