Credit Issuers See Gold in Orange County Cards
No, they’re not just picking on you.
If you live in most areas of Orange County, another credit card application really does fall out of your mailbox just about every other time you open it up.
With its upscale demographics and affluent life style, Orange County has been targeted by many of the nation’s financial institutions and dozens of national and regional retailers as a key battlefield in America’s escalating credit card marketing war.
The reason, according to card marketing specialists, is that the county has a heavy concentration of households with large incomes and big debt loads--just the kind of households that credit card purveyors lust after.
Steve Kollar knows all about it.
The Costa Mesa resident, director of investment services for Rare Coin Investments in Newport Beach, said he receives an average of one bank credit card mailer a week, most from out-of-state banks pitching their Visa and MasterCard accounts.
“They must really target this area,” he said. “When we lived in the Midwest, we never got this much junk mail.”
Nationally, the median family income was $29,000 last year. In Orange County, it was $45,000 and it is expected to hit $49,000 this year.
“And study after study has shown that as income goes up, expectations rise. And with increased expectations comes increased use of credit to realize them,” said Stephen M. Szekely, a vice president of Payment Systems Inc., a Tampa, Fla., consumer financial services research firm.
In other words, keeping up with the Joneses is an expensive proposition in Orange County, and credit card marketers know that a lot of the life style the county is famous for is supported by charge accounts.
Some credit industry observers see danger signs in the intensifying marketing efforts, however.
“A lot of people are succumbing to the temptation of getting additional cards and end up in many cases with credit limits that are far beyond their ability to handle,” said Larry Schwartz, co-director of Credit Card Bureau, a Boynton Beach, Fla., firm specializing in prevention of credit card theft and fraud.
The 401 regional Consumer Credit Counselors offices of the nonprofit National Foundation for Consumer Credit Inc. last year worked with more than 211,500 people who needed help in paying off their credit card debts and other unsecured consumer loans.
The average consumer credit debt load of those coming into the regional centers was $10,000.
In Orange County, however, it was about $17,500, a clear indication that county residents are not only more affluent but also that they have a greater affinity for credit.
American Banker, the banking industry’s daily journal, estimates that nationwide, more than 1 billion solicitations for bank credit card applications were mailed to consumers in 1988.
Direct mail pitches for credit cards usually result in about one new account for every 100 letters sent, which means that those 1 billion mailings probably brought 10 million new customers to the various banks.
Age, Income Groups
And from all available evidence, a disproportionate number of the solicitations were sent to people with Orange County addresses.
Payment Systems, the consumer research firm, has found that credit card marketing efforts tend to target households where the annual income is $15,000 or more and the potential card customer is between 25 and 44.
“That’s because the 25 to 44 age group generally borrow the most and keep outstanding balances on their credit cards longer,” Szekely said.
A segment of the 45-and-over age group--those with annual household incomes above $35,000--is also frequently targeted, mainly for the so-called premium, or “gold,” cards, he said.
And the number of addresses that fit into one of those two target groups represents a big slice of the approximately 830,000 households in Orange County.
A composite of Orange County statistics drawn from Census Bureau data and information from credit card marketing specialists shows that about 60% of county households are within the target age groups, compared to about 51% for the nation as a whole. And about 80% of the county’s households are believed to earn more than $15,000 a year, compared to about 70% nationally.
More important to credit card marketers, the county, as its high median income indicates, has far more households earning $35,000 or more than just about any other place in the nation.
“The high income and the high incidence of home ownership increases the chances that when a national data bank is tapped for a direct mailing campaign, Orange County will come out with a higher hit rate than most other areas,” said Greg Landenburg, vice president of bank card products for Security Pacific National Bank in Los Angeles.
Orange County residents also tend to apply for more new cards than consumers elsewhere, said Gregory Bjorndahl, managing partner of the West Coast Group, an Irvine marketing firm specializing in credit card use patterns.
“From conversations with large credit card issuers, I know this is an appealing area for them, for reasons that are very much the trends in the industry,” he said.
The card marketing blitz began with the advent of annual fees and the loosening of banking and interest restrictions in the late 1970s by states such as Delaware and South Dakota.
Most of the solicitations arrive in the mail, sent from the dozen or so out-of-state banks that have made mass marketing of credit cards a multibillion-dollar business.
“The out-of-state banks are targeting California much more than the in-state banks,” Bjorndahl said.
MNC Financial Inc. of Baltimore, parent of Maryland Bank, runs one of the most aggressive credit card marketing programs in the country through a separate division based in Delaware. Over the past 5 years, MNC has become the nation’s fifth-largest credit card issuer, with about 3.4 million accounts with $4 billion in outstanding debt.
And California--particularly Orange and Los Angeles counties and the San Francisco Bay Area--has become the bank’s biggest market.
“We have more card customers in California--527,000 of them--than even in our own back yard here in Maryland,” said David Spilman, vice president and treasurer of MNC.
High Net Earnings
The reason banking companies such as MNC have plunged so heavily into credit card marketing is simple: It can be extremely profitable if done on a big enough scale with enough controls to keep losses down.
MNC’s credit card operation, which involves only about 17% of the company’s 9,000 workers, accounted for nearly 33% of the company’s $50-million profit in 1987, Spilman said.
In 1986, the latest year for which industrywide figures are available, the bank card issuing and servicing industry had net earnings of $3.9 billion, according to Payment Systems, the Florida research firm.
Cardholders that year paid more than $13 billion in interest on about $84.5 billion in total bank card debt. They also paid $3.2 billion in annual fees, which many card issuers began charging about a decade ago.
It is those annual fees--which can run from $6 to $65 or more--that bring in the profits, said Elgie Holstein, director of Bankcard Holders of America, a Washington-based lobbying and consumer education group for people with bank credit cards.
For example, Citibank, the New York banking giant, had about 20 million accounts at the end of 1988; 3.5 million of those were opened last year. Most were the result of Citibank’s massive direct mail campaigns, said William Ahearn, vice president of the Citibank individual banking division.
With the annual fee on the basic Citibank Visa or MasterCard running about $20, those new accounts added $70 million to the bank’s revenue even before cardholders incurred interest charges on any unpaid balances.
When the credit card marketing competition began nearly a decade ago, issuers worked hard to sell consumers on the idea that if one major credit card was good, three or four were even better.
That no longer is the message behind credit card solicitations. Many issuers now seem to want you to carry and use only their products.
But many Americans find that credit cards, like potato chips, are more satisfying by the handful.
In a study done in the middle of last year, West Coast Group found that Californians who own credit cards carry an average of 9--the national average is 8--and that 43% of the card-carrying Californians wanted more.
Nationally, about 71% of all households possess at least one bank credit card. The figure for California is 87%, according to Payment Systems.
A Santa Ana restaurateur who asked not to be identified said he has a total of 60 credit cards that give him the ability to draw as much as $180,000 in cash advances should he use all the available credit at one time.
He said he uses the credit to raise smaller sums to help cover short-term cash needs for his outside investments.
A more typical user is Kollar, the investment director for the rare-coin dealer. He carries MasterCards from four banks, Visa cards from two banks and an American Express card.
Kollar said the reason for his getting most of the cards was that he used to travel on business nearly every weekend and needed the extensive credit to cover his travel costs until he was reimbursed.
Credit card marketers argue that the marketing push is generally harmless, that consumers are not forced to apply for the cards and that they can just toss the mailers out. The credo seems to be that people, not credit cards, cause debt.
But critics argue that the constant barrage of direct-mail solicitations provides a temptation that some may find too powerful to resist.
“These mailings by banks are totally uncontrolled,” said Schwartz, the Florida credit card theft and fraud prevention expert.
“They have all this access to demographics and names of people across the nation, and they mail out hundreds of millions of applications and the average number of cards has gone up to about eight per person,” he said.
That means there are about 880 million credit cards out there, Schwartz said, with total purchasing power of $2.75 trillion or about 2 1/2 times the amount of currency in circulation.
A LOOK AT CREDIT CARD USERS IN THE STATE
Households in Los Angeles and Orange counties consider bank automated teller machine cards more important than credit cards, according to a survey by West Coast Group. Statewide, a slim margin1868963944
Most important card by percentage of total households
Credit Card Los Angeles / Orange County: 23
San Francisco: 36
San Diego: 28
California: 29
Bank ATM card Los Angeles / Orange County: 27
San Francisco: 24
San Diego: 33
California: 28
Insurance card
Los Angeles / Orange County: 11
San Francisco: 15
San Diego: 9
California: 11
Most recently acquired card by percentage of total households
Department store Los Angeles / Orange County: 16
San Francisco: 27
San Diego: 11
California: 17
Visa / MasterCard
Los Angeles / Orange County: 21
San Francisco: 17
San Diego: 10
California: 16
Bank ATM Card
Los Angeles / Orange County: 8
San Francisco: 9
San Diego: 14
California: 10
American Express
Los Angeles / Orange County: 1
San Francisco: 1
San Diego: 1
California: 1
Credit card ownership by percentage of total households Los Angeles County / Orange County
Department store: 56
Visa: 53
Bank ATM card: 52
MasterCard: 37
Amer. Espress:17
Discover: 16
Source: West Coast Group
GROWTH OF CONSUMER DEBT
Debt accumulated nationwide by holders of bank-issued credit cards has increased more than twice as fast as total consumer debt in the 4-year period ending in November.
In billions of dollars
Nov.’88 Nov.’84 % Change Total consumer debt* $662 $437 51.5 Bank card debt 117 57 105.3 Retail accounts 38 33 15.2
* Home mortgage debt not included
Source: Credit Research Center, Purdue University
