Path: bloom-picayune.mit.edu!enterpoop.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.twt.news From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Banks assailed for gouging on credit cards Date: Wed, 25 Nov 92 16:20:05 EST Message-ID: Lines: 90 \SE A \HD Banks assailed for gouging on credit cards \SH Rates still high as savers get less \BY David R. Sands \CR THE WASHINGTON TIMES Profit-hungry banks have exploited public indifference, inattention and confusion to rake in more than $3 billion in interest overcharges on credit cards in the past year, a consumer group charged yesterday. While interest rates on short-term certificates of deposit and basic savings accounts fell more than 2 percentage points between October 1991 and November 1992, the average rates banks charge on personal installment loans and credit cards fell less than a point, the Consumer Federation of America said. "The spreads today are simply astonishing," CFA Executive Director Stephen Brobeck said. "I have not seen these kinds of margins in my lifetime." The banks' biggest trade group countered that consumers who shop around can find better deals. According to the newsletter Bank Rate Monitor, the average six-month CD pays 2.98 percent, while the average interest rate on credit cards is 18.46 percent. Mr. Brobeck criticized the banks for keeping rates on credit cards high, but he said consumers must manage their debt and shop for the best deals to force banks to lower rates. "For a substantial minority of consumers, withdrawing money from a low-paying savings account and paying down your installment and credit card debt is the best investment they can make right now," he said. Sharply lower interest rates in the past 18 months have allowed banks to reap record profits. The industry says credit card rates in particular remain stubbornly high in part because of high administration costs, regulatory burdens and more defaults during the recession. The American Bankers Association said yesterday that the CFA study "shows a lack of understanding of the competitiveness of the consumer credit market and how banks price consumer loans." With credit unions, finance companies and others in the market, banks no longer "have a death grip on the consumer credit business," the trade group said. " 'Average' interest rates by their very nature do not tell the whole story. Consumers will find a wide range of pricing and products by simply shopping around, and we encourage them to do so." Boston Company Economic Advisors, a consulting firm, recently found that outstanding credit card debt at the end of 1991 totaled $194.1 billion. Consumers paid $33 billion in interest on their credit cards, surpassing for the first time the interest they paid on auto loans and other personal installment loans. Only about a third of all card holders avoid high interest charges by paying their balances monthly. The average consumer owes $1,800 on 2.7 cards. The CFA study was an update of a rate survey that it compiled in October 1991. The new study found that average six-month CD rates at banks fell 2.21 percentage points in the past year, while the average for money-market deposit accounts was down 2.09 percentage points. But two-year personal installment loans fell only 0.92 points, and credit card interest rates dropped 0.42 points. Mr. Brobeck said consumers would have had $3 billion more to spend if banks had lowered credit card rates the full 2 percentage points. One area where borrowers are getting a break is auto loans, which have matched the declines in savings rates by coming down 2.24 percentage points in the past year. Mr. Brobeck attributed that to competition from auto-industry financing companies and to the closer scrutiny car shoppers give to interest rates when paying $10,000. There has been an unprecedented explosion of credit card options in the past year; even major issuers such as Citibank and Chase Manhattan now offer lower rates and better deals to some of their card holders. Mr. Brobeck said the card choices have yet to make a big impact on the market or bring major savings to card holders, but he said recent trends are encouraging. This article is copyright 1992 The Washington Times. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM