Southland banks retain high credit card interest rates.

Even as the prime interest rate reaches historic lows, many financial institutions operating in Southern California are issuing credit cards with annual rates as high as 19.8 percent. Among those institutions are Bank of America, Wells Fargo Bank and Union Bank.

Although all these banks, and most other institutions, also offer credit cards with lower rates, many of their customers continue to accept and use high-rate cards out of ignorance or because they don't take the time to shop around, said consumer advocates.

"Unless consumers get a pre-approved credit card in the mail with a lower interest rate, they're not going to switch," said Jim Sturdevant, a San Francisco attorney who has represented consumers in successful class-action lawsuits against banks for charging excessive late fees and overnight fees.

As a result of consumer inertia, many banks serving Angelenos are getting away with "legalized loan sharking," said state Assemblyman John Rusty Areias, D-Gilroy. "Banks might as well stick a gun in our back and take our money."

Areias, a long-time advocate of capping interest rates on credit cards, said no apparent correlation exists between a bank's cost of money and the interest rates it charges on credit cards.

Cases in point:

* The cost for banks to borrow money -- known as the federal fund rate -- is just over 3 percent, yet banks are charging anywhere from four to six times that amount for credit cards.

* The prime rate -- the rate banks charge their bluechip customers -- had stood at the low annual rate of 6 percent since July 1992. And it was further cut to 5.5 percent by two major banks on Oct. 18. Yet banks are still charging the same credit card rate as they were when the prime rate was around 10 percent.

* Depositors are typically being paid a mere 2 to 3 percent annually on their certificates of deposit, money market accounts and savings accounts. But those same customers are routinely charged up to 19.8 percent on their credit cards.

"Everyone in the industry is just amazed at how long this spread between what banks pay depositors and what they charge customers has continued," said Martin Bradshaw, publisher of Rategram, a financial newsletter publishing operation based in San Rafael.

Rategram compiles a list -- published each Monday in the Los Angeles Times -- of key savings and lending rates offered at 30 of the Southland's largest savings institutions.

On the Oct. 25 list, 13 of the 30 institutions offered credit cards with annual interest rates above 18 percent. Most of the other 18 listed institutions offered annual rates of at least 16 percent -- the rate quoted by banking experts as the nationwide average.

The two exceptions to the Southland's relatively high rates were Household Bank (13.4 percent) and California Federal Bank (14.9 percent).

In defense of their credit card policy, officials at Southland savings institutions argued that credit cards are a huge risk because they are subject to widespread theft and abuse, and they are an unsecured loan. Once a person loses his or her job, credit card debt is the first thing to be ignored, said those in the industry. That becomes especially worrisome with the unemployment rate in Los Angeles County hovering around 10 percent.

Many local banking officials interviewed by the Business Journal also emphasized that they encourage "relationship banking" by offering lower-rate credit cards to people who do other kinds of banking with them.

Union Bank offers four credit cards with fixed annual interest rates ranging from 15.8 percent to 19.8 percent, said Madeline Progner, the bank's senior vice president. Its lowest-rate credit card is available to customers who either have three or more separate Union Bank accounts totaling $5,000, or who are homeowners.

Homeowners who qualify for the "Home Advantage" Master Card are locked into the 15.8 percent annual interest rate for life, with no annual fee. And they are given a 1 percent rebate for home improvements, such as paint and furniture, Progner said.

When asked why the bank still charges certain customers 19.8 percent for a credit card, she said that the rates can change monthly, depending on the customer's relationship with the bank. She said, if a customer has a separate account with Union Bank, such as a checking or savings account, with a balance of $1,000 or more, the credit card rate drops to 17.8 percent.

Bank of America, First Interstate Bancorp and Wells Fargo all offer variable-rate credit cards, with the rate being tied to the prime rate.

Bank of America's variable-rate credit card (pegged at 9 percent above the prime) carries a minimum rate of 16.9 percent, said Betty Riess, a spokeswoman for the bank. She wouldn't disclose, however, how many of the bank's 7 million credit card customers have the variable-rate card.

Wells Fargo offers four credit cards, with annual interest rates ranging from 13.4 to 19.8 percent, said Barbara Brady-Smith, executive vice president of Wells Fargo. She said the 19.8 percent rate is for customers who are "new to credit or who have had credit problems in the past."

After a year, if the customer proves he or she is a good risk, then Wells Fargo offers them a lower-rate card, she said.

Many Southland savings institutions introduced lower-interest credit cards within the past 18 months, said industry sources.

Credit card rates of Southland lenders

                                                    Credit card
Institution                     Headquarters          rate(*)

American Savings Bank           Irvine                18.90
Bank of America                 San Francisco         19.80
Bank of California              San Francisco         16.80
California Federal Bank         Los Angeles           14.90
Citibank                        New York              19.80
Coast Federal Bank              Los Angeles           15.90
Downey S&L                      Newport Beach         16.90
East-West Federal Bank          Los Angeles           15.96
Fidelity Federal Bank           Glendale              15.90
First Federal Bank              Santa Monica          15.90
First Interstate                Los Angeles           15.90
First Nationwide                San Francisco         17.90
Foothill Thrift                 Agoura Hills          15.90
Great Western                   Beverly Hills         19.80
Home Savings of America         Irwindale             10.00
HomeFed Bank                    San Diego             19.00
Household Bank                  Salinas               13.40
Sanwa Bank                      Los Angeles           17.25
Sumitomo Bank                   San Francisco         19.80
Trust Savings Bank              Arcadia               19.80
Union Bank                      San Francisco         19.80
Union Federal Bank              Brea                  19.80
Wells Fargo                     San Francisco         19.80
Western Financial               Irvine                18.90
World Savings                   Oakland               19.80

* Although most banks offer credit cards at varying rates, the
rates quoted are the ones the banks listed on a fax survey and
generally refer to the rate given to walk-in depositors.

Source: Rategram, a financial newsletter tracking the highest
yields for savings vehicles. 124 Cresta Dr. Suite 12, San
Rafael, CA 94903. [phone].

Assemblyman Areias, however, called the new lower-rate credit cards "a cover" for savings institutions seeking to appear as though they are being responsive to customers. However, most bank customers continue to possess and use high-rate credit cards, and most carry balances.

Considering the current federal fund rate, Areias said credit card rates should range between 10 and 12 percent.

Not all institutions charge high interest rates on their credit cards chart. A chart published recently in the Wall Street Journal cited 10 lending institutions with annual credit card interest rates ranging from 7 to 11.9 percent.

None of those institutions, however, were from California.