Celebration of Credit? No Longer : Seasonal Incentives for Borrowers Are Cut as Year-Round Card Deals Spread

People heading to the malls today, in what is traditionally the busiest shopping day of the year, will find incentives to buy on credit in short supply.

In sharp contrast with recent holiday seasons, banks and department stores are offering shoppers fewer holiday incentives such as giveaways, one-time-only interest rates or merchandise discounts.

Mervyn’s has eliminated special pre-holiday sales for charge customers and 15% discount coupons for credit purchases. Wells Fargo isn’t repeating last year’s giveaway of discount certificates, good at certain retailers. Montgomery Ward and J.C. Penney have tightened restrictions on deferred-payment deals.

The cutback in holiday credit incentives comes amid signs that consumers may not need extra encouragement to spend. Low interest rates and falling prices have sparked a modest surge in spending that economists expect to last at least through the end of 1994.

Ironically, the scarcity of holiday credit deals coincides with a surge in credit card incentives offered throughout the year, as marketers try to build customer loyalty beyond just the holidays.

Though not new, holiday credit incentives exploded in 1991 and again last year, as card issuers dangled rebates and discounts to persuade recession-weary consumers to spend. In a weak economy, the incentives took on increased importance, as one-third of yearly charge volume is registered between Thanksgiving and the end of the year.

This year, card issuers are buoyed by growing signs that consumers are not only willing to spend, but to take on more debt. Thanks in part to lower interest rates, monthly payments on mortgages, auto loans, credit cards and other debt now eat up 16.1 cents of every after-tax dollar, compared to 18.2 cents at the beginning of 1991, according to the Federal Reserve Board.

Figures compiled by Mastercard show steady growth in credit card borrowing. Mastercard said debt outstanding on credit cards grew by 13.9% in the second quarter, compared to 7% in last year’s second quarter. But at the same time, consumers remain wary about overextending themselves. The company said the percentage of accounts carrying monthly balances is down this year and that people who carry balances are paying them off at a faster pace than in 1992.

“Everybody has cleaned up their balance sheets a little bit. . . . There’s room to finance another Christmas,” said Diane Swonk, an economist with First National Bank of Chicago. One possible exception is California. A statewide recession and high unemployment is taking its toll on consumers’ finances. According to SMR Research Corp. of Budd Lake, N.J., California has the second-highest mortgage delinquency rate and the third-highest consumer loan delinquency rate in the nation. California has the fifth-highest consumer bankruptcy rate, SMR Research said.

Swonk and other economists nonetheless expect an improved Christmas in Southern California, with sales buoyed in part by replacement purchases for homes damaged or destroyed in recent wildfires.

In what is undoubtedly a mixed blessing for credit card issuers, hard times haven’t discouraged Californians from using their cards. A survey of shoppers this week by the Arthur Andersen consulting firm found that nearly two of five shoppers in three Western states--California, Nevada and Hawaii--planned to make holiday purchases on credit, the highest proportion in the nation.

For these shoppers, the question is which cards they will use. Robert McKinley, president of RAM Research, a Frederick, Md., firm that tracks credit card fees and interest rates, said consumers prefer deals that allow them to earn free gasoline or discounts on toys all year, rather than onetime holiday credit enticements.

To attract cardholders and keep them, consumer products companies such as General Electric, General Motors, Ford and Shell have brought out cards that allow users to earn rewards all year. People who use the standard GM card can earn a rebate of up to $3,500 over seven years, an incentive GM hopes is powerful enough to persuade consumers to put all purchases--including holiday purchases--on the card.

“Holiday promotions are definitely down,” said McKinley. “‘What we are seeing is all-out war for customers, not holiday competition.”

Holiday incentives haven’t quite disappeared, though. Mastercard International, as part of its Master Values program, is offering discounts of up to 25% on merchandise or services purchased with its card from 85 merchants or manufacturers, including Mattel Toys, Thrifty Rental Car and Zales. Not to be outdone, its rival Visa USA this week started a sweepstakes in which, through Christmas Eve, it will give $1,000 to one Visa credit card user a day.

Sears, Roebuck & Co. is again delivering a sackful of enticements. The nation’s largest store card issuer is raising credit limits by several hundred dollars for one-fifth of its 27 million active card holders, allowing more than 5 million card holders to skip a payment, as well as offering deferred financing on big-ticket purchases.

But other card issuers have gotten stingier. Last year, all Wells Fargo customers who used their card got certificates for discounts on merchandise at the Broadway and other Carter Hawley Hale stores. But this year, only a relatively small percentage of card holders--those with the new California Advantage card, which gives users a break on their mortgage--are being offered an incentive. Wells Fargo is doubling their rebate earned on purchases.

J.C. Penney narrowed its deferred-financing offer to furniture this year after permitting it on all purchases last year. Similarly, Montgomery Ward this year restricted deferred financing to electronic or automotive equipment purchases of $150 or more. Two years ago, the limit was $50.

Mervyn’s eliminated all special deals except deferred financing before the holiday shopping season gets under way today. A spokeswoman said the unit of Dayton Hudson is stressing low overall prices rather than special deals.

Though deferred financing has a special appeal for consumers during the holidays, McKinley predicts department store cards will lose volume to bank cards offering airline tickets, cash rebates or free telephone calls. He said that is one reason why Nordstrom plans to issue its own bank card soon.

“It’s never been a more competitive environment than it is today,” said Jeff Cohen, senior vice president for GE Capital’s private-label card business, which manages accounts for dozens of retailers, including Macy’s, Ikea and Montgomery Ward. (The business is separate from its GE MasterCard.) The challenge, Cohen said, is “to break through the clutter and come up with a program that reinforces the loyalty developed with customers.”

Times staff writer Kathy M. Kristof contributed to this story.