AT&T; Cuts Its Universal Card Interest Rate : Credit: The action heats up a competitive split in the industry as some card issuers offer rewards, while others stress the price advantage.

American Telephone & Telegraph lowered the interest rate on its credit card as expected Wednesday, highlighting an emerging competitive split in the credit card business between those that offer low rates and those, such as General Motors’ card, which tempt with rewards.

The AT&T; cut was not a direct response to GM, which shook up the industry a week ago with a card that gives heavy users price breaks on GM cars. Rates on AT&T;’s Universal card track changes in the prime rate, which recently fell.

The cut nonetheless gave AT&T; the opportunity to steal some of the spotlight from GM, and to shift attention back to interest rates, where AT&T; now has a clear price advantage.

“You are seeing some definition of the price battleground, no question,” Atlanta credit card industry analyst Bruce Brittain said.

In the last several weeks, the battleground seemed to be shifting from rates to rewards. Rather than offer cheap credit, GM and General Electric brought out cards that lure customers with special rebates. GE will give customers discount coupons for merchandise at Toys R Us, Bullocks and other stores.

AT&T; on Wednesday argued that its card offers consumers more value than its fledging competitors. “We would have to see consumers seduced into spending more to take advantage of what consumer advocates call these bells and whistles and frills,” spokesman Bruce Reid said.

Consumer activists are concerned that the lure of rebates and other enhancements will distract consumers from the real cost of credit card borrowing, which now averages 17.54%, down from 18.8% a year ago.

But analysts expect the GM card to be successful, particularly since it has no annual fee. David Robertson, president of the Santa Monica-based Nilson Report, predicted GM will gain 5 million cardholders in two years. AT&T; has about 15 million.

“AT&T; is really concerned about GM,” said Robert B. McKinley of Ram Research, a market research firm. “They feel a need to defend their turf and assert their leadership in the industry.”

AT&T;’s Universal card has been one of the credit card industry’s success stories. Introduced in March, 1990, it grew quickly by underpricing competitors. On Wednesday, it was disclosed that it is now the third most widely held card, behind Sears’ Discover card and Citibank. It displaced Chase Manhattan.

When its new rate cut takes effect on Oct. 1, AT&T; will retain its cost advantage over other major issuers. People who signed up for the Universal card before March, 1991, will pay 14.9%, AT&T; said. Other cardholders will pay 15.9%.

By contrast, GM offers an initial rate of 16.4%. The new GE card has a rate of 18.4%. The GE card also has a $25 annual fee, which analysts say will cause it to grow slowly.

Until now, AT&T; dictated the terms of the credit card competition, forcing giants such as Citibank and Chase to lower rates for their best customers. The question is whether the industry will continue to follow AT&T;’s price-cutting path, or if they will offer more GM or GE-style rewards.

Some believe that the industry will offer rewards.

“If card issuers have their way, they will try to compete on anything but price,” said Gerri Detweiler, a consumer activist with Washington-based Bankcard Holders of America, who is disappointed with rates on both the GM and GE cards. She nonetheless expects others to come out with similar enhancements.

Such a development would bring relief to the credit card business, where rate competition and rising delinquencies have chipped away at once-lofty profits. In the current recession, especially, the nation’s banks have relied on profits from credit cards to make up for losses on other kinds of consumer loans.

Will consumers pay higher rates for cards that reward them with rebates or coupons?

“In a recession or post-recession environment, consumers are looking for extra value,” said Robertson. GM and GE, he argued, “have raised the cards beyond a payment vehicle into something that can bring discounts.”

As competitors move to match these rebate programs, he said, consumers will be able to choose among reward programs; several airlines already offer cards that allow customers to accumulate frequent-flier miles.

“It’s a great time to be a consumer,” Robertson said.