Payment Card News

Rate Hike Coming

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The Federal Reserve boosted short-term interest rates by 25 basis points or a quarter of a point (0.25%) today. Today’s action will move most of the nation’s larger banks to raise the Prime Rate to 8.00% from 7.75%. Since more than 80% of bank credit cards have variable interest rate structures, the Fed action will invariably raise card rates. Of the 400 million bank credit cards carrying variable rates, about 300 million are tied directly to the Prime Rate. (Other indices used by card issuers include LIBOR [London Interbank Offered Rate], T-bills and the Discount Rate.) The approximate 300 million Prime Rate-based cards represent nearly $300 billion in card receivables or outstandings. Therefore a 25 basis (0.25%) point rise in the Prime Rate will cost American consumers $750 million in additional interest charges over the next year. The average American household with $5,000 in card balances will pay about $13 more over the next year. Since the rate action comes ahead of the start of the third calendar quarter, many consumers will see the change in their July or August credit card statements. For example, consumers who hold the Discover card or the GM MasterCard will see increased rates in their July statements. Customers of Bank One/First USA, who have Prime Rate-based cards, will not see the rate hike until their August statements. Meanwhile Citibank, AT&T Universal and MBNA cardholders will not see increased rates until October since both of these issuers adjust rates quarterly and have past their cut-off dates.

RATE ADJUSTMENT SCHEDULE FOR JULY STATEMENTS
ISSUER      RATE BASIS  CYCLE     CUT-OFF
CitibankPrimeQuarterly    June 15
BankOne/FUSAPrimeQuarterly    June 22
MBNA         PrimeQuarterly    June 15
DiscoverPrimeMonthly     June 30
Chase        PrimeMonthly     July 1
Bank of AmericaPrimeQuarterly    July 1
Capital OneLiborMonthly     July 5
Fleet        PrimeQuarterly    July 1
HouseholdPrimeMonthly     July 1
ProvidianFixedNA     NA

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