Rules Make Credit Card Shopping Easier

Federal disclosure rules taking effect today will make it easier to shop for a credit card, fostering competition that could lower interest rates for the nation’s 107 million cardholders.

The regulations, adopted in April by the Federal Reserve Board, require credit card issuers to disclose the interest rate, monthly fee, grace period and other terms in a chart on the application used to sign up customers.

Until now, companies have been able to attract customers through hyped-up advertisements and mail solicitations, without disclosing the card’s costs until it arrived in the mail.

Hype and glitz are still permissible, but now will have to be accompanied by hard facts.

How Rules Apply

“The ball is now clearly in the consumer’s court. There will be big-print, up-front disclosure,” said Rep. Charles Schumer (D-N.Y.), the sponsor of legislation adopted last October that directed the Fed to formulate the disclosure rules.

The rules apply to bank cards, such as Visa, MasterCard and Discover; to department store cards, and also to charge cards, such as American Express and Diners Club, which require all charges to be paid each month.

“Companies that were using gimmicks to hide their high rates can’t now,” said Peggy Miller, a lobbyist for the Consumer Federation of America. “I’m very hopeful that this will at least provide the edge to consumers to make better judgments.”

Consumer activists are hoping that the regulations will force credit card companies to compete by lowering their interest rates and annual fees. But Robert B. McKinley, publisher and editor of RAM Research’s Bankcard Update, a Frederick, Md., newsletter that follows the industry, has doubts.

Competition has increased in the past several years, but rates are still high, even in the dozen or so states such as California and New York which have their own disclosure laws, he said.

Nationally, cards offered by banks had average interest rates of 18.28% in August, McKinley said.

Support of Trade Groups

Credit card rates first became a political issue in the early 1980s when short-term interest rates soared above 20%. Consumer groups sought disclosure rules and federal caps on the rates, but made little headway until they dropped their demand for caps.

Trade groups such as the American Bankers Assn. supported the final legislation because it preempted state disclosure laws, making the rules uniform throughout the nation, and did not include caps, which bankers argued would force them to offer cards to only the most affluent customers.

INSTITUTIONS ISSUING CREDIT CARDS WITH RATES UNDER 16%

Here is a list of 10 banks and savings institutions offering credit cards with interest rates below 16% in August. Nationally in August, rates averaged 18.28% and annual fees $16.97. 1. Arkansas Federal, Little Rock, Ark. 11.88% annual interest, variable. $35 annual fee. No grace period. Interest charged from date of purchase.

2. People’s Bank, Bridgeport, Conn. 13.5%, but a higher rate charged for cash advances. $25 annual fee. Twenty-five-day grace period.

3. NCNB Texas, Dallas. 13.9%, variable. No annual fee. Twenty-five-day grace period.

4. Republic Savings, Milwaukee. 13.92%. $10 annual fee. No grace period. Interest charged from date of posting.

5. Horizon Savings, Austin, Tex. 14%. No annual fee. Twenty-five-day grace period.

6. First Atlanta, Wilmington, Del. 14.88% $24 annual fee. Twenty-eight-day grace period.

7. Connecticut Bank & Trust, Fairfield, Conn. 15%, but a higher rate for cash advances. $25 annual fee. Twenty-five-day grace period.

8. USAA Federal, Tulsa, Okla. 15.32%, variable. No annual fee. Twenty-five-day grace period.

9. Mercantile, St. Louis. 15.9%. $20 annual fee. Twenty-five-day grace period.

10. Champion Federal, Bloomington, Ill. 15.9%. $20 annual fee. Thirty-day grace period.

Source: Bankcard List by RAM Research of Frederick, Md.