Consumer Coalition Urges Reduced Credit Card Rates
Contending that consumers are being ripped off by high interest rates on credit cards, a coalition of consumer groups Thursday launched a nationwide campaign urging consumers to “fight and switch” to institutions offering lower card rates.
The campaign, kicked off by news conferences in Los Angeles and five other cities, also urges consumers to write congressmen to ask for legislation to limit credit card rates and to require improved disclosure of credit card terms. The campaign also will distribute lists of institutions offering low card rates.
“We’re mad as hell . . . and are not going to take it anymore,” said Ken McEldowney, executive director of San Francisco-based Consumer Action, a coalition member. He noted that average card rates of about 18% nationally are higher now than six years ago, even though institutions’ cost of obtaining funds to lend has dropped to about 6% from more than 12%.
The campaign, which hopes to put more pressure on banks and savings and loans to lower card rates, comes as a small but growing number of these institutions already are cutting rates.
The campaign also comes amid signs that some consumers already are switching from high-rate cards. Also, tax reform, which phases out deductions for interest on credit cards, is spurring some consumers to take out home-equity loans to pay off credit cards, some bankers report.
However, more of the nation’s 75 million card holders would switch if they knew about lower rates elsewhere, and more institutions would cut rates if they began losing customers, coalition members said. “We’re trying to inject some competition,” said Judith Bell, policy analyst for Consumers Union, publisher of Consumer Reports magazine.
Consumer Action’s McEldowney contended that rates are particularly high in California partly because the largest institutions dominate the card business here and generally do not adequately disclose rates and fees in advertising and initial solicitations.
Banks, however, contend that rates are higher on credit cards than on other loans because credit card loans are unsecured and carry higher processing costs and rising loan losses.
“It is obvious that organized consumer groups don’t understand the basics of the credit card business,” the California Bankers Assn. said Thursday. It said processing costs typically account for 60% of credit card interest charges, compared to only 5% on mortgages.
The Consumer Bankers Assn. also noted that some lower-rate cards carry tighter qualification standards and variable rates.
California’s four largest banks--Bank of America, First Interstate, Security Pacific and Wells Fargo--charge at least 19.8%. However, at least eight California institutions offer rates below 16%, including San Francisco Federal Savings at 13.5%, Bell Savings at 14.07% and Santa Barbara Savings at 14.9%.
Among the lowest rates nationwide are 10.5% at Simmons First National Bank of Pine Bluff, Ark., and Union National Bank of Little Rock, Ark.
Coalition members distributing lists of low-rate cards include Consumer Action and the Washington-based Bankcard Holders of America. Other consumer groups in at least 15 states also plan to conduct and distribute surveys of low-rate cards.
Other coalition members include Consumers Union, Consumer Federation of America, Public Citizen, National Consumer League, U.S. Public Interest Research Group and other state and local organizations.
Institutions Offering Low-Interest Credit Cards, Los Angeles Times
Annual Annual Institution fee %rate San Francisco Federal S&L; $21.00 13.50 Bell S&L; $18.00 14.07 Santa Barbara S&L; $10.00 14.90 Sacramento S&L; $12.50 15.00 American S&L; $15.00 15.00 Beverly Hills S&L; $15.00 15.90 Continental Savings $10.00 16.00 Home Savings of America $15.00 16.00 Union Nat’l Bank, Arkansas $20.00 10.50 Simmons 1st Nat’l Bank, Arkansas $22.50 10.50
Source: Consumer Action, L.A. Times survey; does not necessarily include all California institutions offering interest rates of 16% or less.
