NEW YORK (AP) — A credit card war is brewing, just in time for the holiday shopping rush.
American Telephone & Telegraph Co., the nation’s second-largest issuer of credit cards, is offering sharply lower interest rates to its best customers. On a smaller scale, No. 1 Citicorp gave some of its customers a rate cut in September.
Other credit card companies are expected to follow their lead.
The motivation? To entice customers to pull out their company’s card when they charge Christmas gifts. About 20 percent of a year’s charges are made between Thanksgiving and Christmas, said Robert McKinley of Ram Research Co.
“It’s a move for wallet share,” said Mitchell Montagna, a spokesman for AT&T Universal Card Services Co.
The rates are dropping even though interest rates in general have not moved significantly lower.
The prime rate, which banks charge their best customers and which is used as a benchmark for other loans, has not changed since Feb. 1, when it was lowered by one-quarter percentage point to 8.25 percent.
Consumer advocates, including Stephen Brobeck, executive director of the Consumers Federation of America, said the rate move proved that credit card issuers have room to lower their rates without hurting profitability.
“Credit card rates are extremely high, given the cost of credit to banks,” Brobeck said.
The average bank-issued credit card charges 18 percent interest; the average credit union card charges 13 percent.
In a letter to customers last week, AT&T Universal said it would lower the interest rate on its credit cards to 13.85 percent. That represents a drop of 4.3 percentage points for AT&T’s most expensive card, from 18.15 percent rate right now. The new rate, effective Dec. 1, will remain 5.6 percentage points over the prime lending rate.
AT&T is offering an even lower teaser rate to customers who transfer balances from other credit cards onto their AT&T account.
Montagna would not say how many of AT&T’s 23 million cardholders received the letter, but said it was a significant portion.
Citicorp’s rate decrease in September only applies to about 4 million of its 38 million customers and in some cases depends on the balance amount. The rate for its Gold Card customers dropped from 15.65 percent to 13.65 percent.