| Consumer Action, founded in 1971, is a non-profit education and advocacy
organization based in San Francisco, CA. The survey and this press release can
also be found on CA's web site (www.consumer-action.org). |
Watchdog group finds that despite an
historic low in underlying indexes, APR floors at nine of the top
ten issuers blocked their variable rate customers from benefiting
fully.
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.
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
APRs-"floors"- 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.
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 APR floors.
"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 adjusts immediately (Union State Bank) while
another adjusts 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. Minimum 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. 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.
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).
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.
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.
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 can also be found on CA's
web site (www.consumer-action.org).
The survey is offered free to
consumers who send a self-addressed, stamped envelope (57¢) 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.)
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