CREDIT CARD BANKS SLOW TO LOWER RATES

July 3, 2001

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Credit card finance charges are declining at a dramatically slower pace than general interest rates so far this year, costing consumers billions of dollars in potential savings, according to the Associated Press. Since the beginning of the year, the Federal Reserve Board has lowered short-term interest rates six different times, causing the banking industry to lower its bellwether prime rate from 9.5 percent in early January to 6.75 percent today.

Less than half of that 2.75 percentage point decline has been passed on to credit card holders, according to CardWeb.com, an industry research firm. At the end of June, the average credit card rate nationally stood at 15.43 percent, or 1.14 percentage points below the December 2000 average of 16.57 percent, CardWeb said. The decrease in credit card rates will shave an estimated $6.5 billion in payments on the $666 billion of outstanding credit card debt owed by consumers nationwide.

That translates into an average savings of about $80 this year among consumers with a balance on their credit cards.”But consumers would be saving more than twice as much if the rates were keeping closer in step with the prime,” said Robert McKinley, CEO of Frederick, Md.-based CardWeb. “The savings aren’t filtering down to consumers like they have in the past.”

Credit card lenders say their relatively high rates reflect the greater risks associated with making unsecured loans. Some bankers are also worried that they will suffer more unusually high losses on credit cards this year because more attorneys are advising financially troubled consumers to file for bankruptcy this summer before new laws make it more difficult to dismiss past debts.