Get Ready for Higher Card Rates
The surge in short-term interest rates is hitting consumers in their wallets: Interest rates on variable-rate credit cards are on the way up.
Most variable-rate cards are pegged to changes in the prime rate, the interest banks charge their best corporate customers. This week the prime rate rose by half a percentage point to 6.75%, the second increase in less than a month.
Most banks and other financial institutions adjust credit card rates quarterly. People with variable-rate cards--about two-thirds of credit card holders--will see higher rates this summer.
Robert A. McKinley, president of Frederick, Md.-based Ram Research, estimated that the rate increase will cost the average consumer an extra $20 a year.
Many economists believe short-term rates will continue to rise gradually, perhaps pushing the prime rate to 7% by the end of the year. That would lead to another boost in credit card rates.
People with variable-rate cards can take some steps to reduce the impact of rising rates:
* Choose a card that limits how high rates can go. First Interstate’s standard variable-rate card won’t charge more than 17.5%, no matter how high rates rise. Two popular cards--the AT&T; Universal card and the GM card--have no ceilings on interest rates.
* Choose a card with a small spread over the prime rate. Bank of America’s standard card rate is the prime rate plus 10.9%. That means the BofA card will have a rate of 17.65% when the new prime rate is factored in. Wachovia National Bank in Georgia charges 3.9% plus prime, or 10.65% when the rate is adjusted.
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Everyone in the club: If the newly merged Price-Costco Wholesale Club stores seem a bit crowded, here’s why: Thousands of Southern Californians have received free 60-day trial memberships.
The solicitations are unusual. Before the merger, both companies resisted mass-membership drives. They targeted select groups, such as small-business owners and union members--people likely to have the resources to buy office supplies or groceries in bulk.
Analysts who follow the company say Price-Costco is apparently under pressure to improve sales and defend itself against Sam’s Club, a unit of Wal-Mart Stores that recently converted 91 Pace Membership Warehouse stores acquired from Kmart.
“This is a departure and is somewhat worrisome,” said Mark D. Mandel, an analyst with Salomon Bros in New York. “This is more evidence that they are stretching or groping to reinvigorate the company.”
Here’s why Price-Costco wants you: As a result of the merger, the company has experienced a small decline in membership renewals due to overlapping Price and Costco memberships. The situation isn’t dire: Overall revenue from membership fees is up because the company gained members at 31 new stores and increased membership fees. But the company can’t afford to give up any ground, because annual membership fees are an important source of revenue. Without them, the company would not be profitable.
Of course, Price-Costco also wants new members’ shopping dollars to help turn around a sales decline at stores open a year or more.
Should you use the free trial membership card? Not if you intend to become a member. People using the trial membership will be charged 5% more than the regular Price-Costco price. Therefore, on the typical warehouse purchase of $150, trial shoppers will pay $7.50 more--an amount equal to a fifth of the annual membership fee.
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They want lemon-aid: The Legislature is considering a bill that proponents say would reform the state’s automobile lemon law.
The key features of the bill, which passed Wednesday in the Assembly Consumer Protection, Governmental Efficiency and Economic Development Committee:
* Defines a lemon as a car that has had four unsuccessful repair attempts over 24 months. The period now is 12 months.
* Extends lemon-law coverage to business vehicles used by self-employed individuals or companies with fewer than 10 vehicles in their fleets. Currently, business vehicles are not covered.
* Establishes a state-run arbitration program that consumers could use instead of going to court. Currently, consumers must arbitrate the dispute if the manufacturer runs an arbitration program before taking the matter to court.
* Establishes fines of up to $100,000 against auto makers failing to comply with arbitration judgments. There currently is no fine.
The legislation will almost certainly be amended, and passage isn’t a sure thing. Lee Ridgeway, lobbyist for General Motors Corp., said state-run arbitration should be a mandatory first step. However, the state’s powerful trial lawyers are expected to oppose any limits on consumers’ ability to sue auto makers.
