2002 Credit Card Survey Press Release

Non-profit watchdog group finds that despite an historic low in underlying indexes, nine of the top ten issuers

Contact: Ken McEldowney or Linda Sherry, (415) 777-9648. Chinese and Spanish speakers available.

San Francisco, Friday, March 22, 2002 — The new National Credit Card Survey by Consumer Action (CA), released today, takes a close look at 126 credit cards issued by 42 companies.

Since the mid-1980s, the non-profit education and advocacy organization has conducted an annual review of credit card rates and terms in order to gauge industry trends and provide consumers with a comparison tool. The full survey appears in the March 2002 issue of the group’s newsletter, Consumer Action News. The survey and this press release are also online on CA’s web site (www.consumer-action.org).

The survey is offered free to consumers who send a self-addressed, stamped envelope to Consumer Action-CC Survey, 717 Market St., Suite 310, San Francisco, CA 94103. (If you would like to publish a phone number, please use (415) 255-3879.

Due to lower federal interest rate indexes, average variable annual percentage rates (APRs) have fallen by almost three and a half percentage points in the past year-but 29% of variable rate cards surveyed by CA have minimum APR policies that short-circuit the trend. Without these floors, the rates would have dropped by almost five percentage points. Twenty-nine percent of the variable rate cards in this year’s survey have a minimum APR-known as a “floor”-that the rate will not go below, no matter how low the underlying index.

CA found that with the exception of Capital One, the top ten U.S. credit card issuers feature minimum APR pricing: Citibank, MBNA, Bank One, Chase Manhattan, Providian, Bank of America, Household, Fleet and Direct Merchants. Overall, 25 of the 85 surveyed variable-rate cards won’t budge below a given point because of minimum APR requirements.

“The prime rate-the most widely used index-is at its lowest level in almost three decades, but customers of issuers with a floor won’t reap the rewards,” said CA Executive Director Ken McEldowney.

Seventy-eight percent (78%) of surveyed cards with variable APRs adjust monthly; 15% adjust quarterly. One card adjusted immediately (Union State Bank) while another adjusted every six months (First Consumers National Bank).

Other key findings from this year’s survey include:

* The prime rate was 9.00%-9.50% during last year’s survey, which was conducted during January 2001. During the current survey, done Dec. 12, 2001-Feb. 11, 2002, the prime rate was 4.75%. The lower prime rate is reflected in the average APR of all surveyed cards, 11.73%-3.44 percentage points below last year’s average of 15.16%.

* This year shows that the one-time industry standard requiring cardholders to pay monthly minimum payments of 4% of the outstanding balance has gone the way of the dinosaur. Payments are now 2%-3%. Of the 126 surveyed cards, 43% require cardholders to pay only a tiny 2% of their outstanding balance each month. The industry standard was 4% for many years-none of the cards surveyed this year require 4% minimum monthly payments. Another 31 surveyed cards (25%) require minimum monthly payments of 2%-2.5%.

* There has been a large jump in banks using risk-based pricing. CA found that 37% of surveyed institutions force applicants to apply for a card before letting them know the APR on their new card. Two years ago, CA found only 14% of surveyed issuers using this tactic. Surveyed issuers that employ this tactic in 2002 include American Express, Bank of America, Bank One, Capital One, Chase Manhattan Bank, Citibank, Direct Merchants Bank, Firstar Corporation, Five Star Bank, Generations Bank, People’s Bank, Providian Bank, Sears National Bank, US Bank, USAA Federal Savings Bank and Wells Fargo Bank.

* Late fees have risen sharply, up 7% in just one year. Late fees ranged from $10 (California Bank and Trust and Generations Bank) to $35 at many issuers. The majority of surveyed cards-72 or 57%-charge $29 late fees. CA found an unprecedented 10 cards with late fees of $34-$35 as well as 15 cards with a range of late fees between $15-$35 (these are applied based on the applicant’s credit history). In last year’s survey, only one issuer (Fleet Bank) had broken the $30 level. The average of all late fees this year is $27.82-a 7% jump from last year’s $26 average late fee. By comparison, late fees in CA’s survey a year ago had increased only 2% in the preceding year.

* Seventy-two percent of issuers surveyed-up from 68% last year-said they would hit cardholders with a late fee if their payment was not received by the due date. Of the issuers granting a bit of slack, the period ranged from one day to 10 days.

* More issuers are charging currency conversion fees on purchases made in other countries-up to 4% of the amount. The MasterCard and Visa networks take a 1% commission for purchases or cash advances abroad. CA found that 16 of the surveyed issuers (37%) now tack on an additional conversion fee to overseas purchases.

* If you don’t pay on time, late fees are not the only punishment you face. Almost three-quarters of all surveyed cards (74%) feature penalty rates (also known as default or delinquency rates) for customers who make one or more late payments. Last year, only 69% of surveyed issuers did this. This year, penalty rates found by CA range from 12% (Arkansas National Bank) to 29.49% (Direct Merchants Bank).

* Eighty-five of the surveyed cards (67%) charge cash advance fees of 3%-3.5% of the amount advanced, while 24 charge 2%-2.5% and 13 charge 4%. Household Bank charges 5% cash advance fees on its two surveyed cards. Generations Bank has a flat fee of $2 for each advance. Pulaski Bank & Trust is the only bank in the survey with no cash advance fee.

* Of the 126 surveyed cards, 78 (61.9%) have higher interest rates for cash advances. (This is a slight increase from last year’s survey, which found 60% of cards with higher cash advance APRs.)

* Of the 43 surveyed issuers, 33 (77%) offered initially lower “teaser” APRs to new cardholders ranging from zero-interest deals up to 9.99%. The average introductory rate on purchases was 3.63% and the average for transferred balances was 3.95%. Most offers stay in effect six months.

Consumer Action, founded in 1971, is a non-profit education and advocacy organization based in San Francisco, CA.


 

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