- The Washington Times - Saturday, October 13, 2001

Some credit-card rates are not dropping, although the Federal Reserve has cut interest rates nine times this year. But Congress is unlikely to give consumers relief, banking officials say.
The prime rate which banks raise or lower in step with the Fed's moves has dropped four percentage points this year to 5.5 percent. The national average for variable rate credit cards has fallen less, averaging 13.8 percent this week, down from 17.1 percent in January, according to Bankrate.com, a financial tracking firm in Palm Beach, Fla.
Certain factors are slowing the fall, said Greg McBride, an analyst with Bankrate.com.
"Typically, there is a lag time between when interest rates are enacted and when credit-card rates are repriced," he said. Many issuers change their rates quarterly, sometimes causing a three-month delay.
"The other fact that's coming into play more and more with each subsequent rate cut are those floor rates once a card reaches that point, it will not go any lower."
About one-fourth of the nation's credit-card holders have floor rates, which are a set percentage consumers agree to pay when they accept the card. Floor rates differ depending on a person's credit history. But whether their floor rate is 17.9 or 9.9 percent, most have hit their floors.
"If this is not 'it,' we're certainly getting close," said James Daly, editor of Credit Card Management, an industry magazine published in Chicago.
Issuers say revenue from floor rates covers the cost of doing business, so they continue to issue cards at the current floor rates and do not plan to reduce rates.
The only step consumers can make to get lower rates is to ask their creditors, said Victor Stango, an economist with the emerging payments department of the Federal Reserve Bank of Chicago who specializes in credit-card research.
"Surprisingly enough, that works sometimes," he said. "Though in this instance with credit-card rates being as low as they are, I would not expect the credit-card companies to be willing to cut rates."
Another issue is the rising number of credit-card delinquencies. They hit a historic high of 3.92 percent during the second quarter, compared with 2.99 percent a year earlier, according to the American Bankers Association.
"Credit-card delinquencies are the highest they've been in 10 years," Mr. McBride said. "Boosting the economy is one thing but it doesn't do a whole lot of good for the economy if they reduce the floor rates to stimulate spending by card holders, but then those balances end up in delinquencies or default."
That is why industry insiders do not expect the government to step in and demand lower rates.
"Any official policy or restrictions on credit-card rates would have to come from Congress, and I see that as being pretty unlikely right now," Mr. Stango said.
Credit-card companies were in a similar situation during the 1990-91 recession.
Interest rates had stayed high, while banks' cost of raising funds were at their lowest in years.
The House passed a bill placing a cap on the interest credit-card issuers could charge. But the measure died in the Senate.
Nevertheless, the issue attracted the attention of President Bush, who spoke out against high rates. His move prompted many issuers to drop their interest rates to avoid bad press.
"The thing that occurs is that whenever you put in some type of price ceiling, it is going to harm the very individuals that it's trying to help," said Keith Leggett, an economist with the American Bankers Association, the industry's biggest trade group. "If you put a cap on interest rates individuals who are trying to establish credit or have had some problems in their credit history may find they are now not able to get credit."

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