Fleet Finance pulls plug on its low fixed-rate credit card
By Libby Wells and Lucy Lazarony • Bankrate.com

Low-rate credit card offers are disappearing faster than you can say "charge."

The momentum for banks to dump cheaper, fixed annual percentage rates in favor of higher variable rates is gaining steam. The latest company to make the switch is Fleet Financial, which ranks among the top 10 card issuers.

Fleet's new customers are no longer being offered the 7.9 percent fixed-rate platinum card. Its best platinum deal is a 10.6 variable-rate, with a 2.9 introductory rate for six months. The best deal for standard cards, which stood at 10.9 fixed, has been bumped up to a 13.6 variable rate featuring a 5.9 percent six-month teaser APR.

Others have pulled plug, too
This comes less than a month after BankOne's decision to drop its 9.9 percent fixed-rate card and go to a 15.4 percent variable. Its credit card subsidiary, First USA, pulled the plug on the 9.9 about four months ago.

That leaves Capital One as the only major issuer offering a single-digit fixed rate card.

Why, after a couple of years of a low-rate buffet, are card companies bolting from that trend?

Industry insiders say the Federal Reserve's steady rate hikes -- last week's jump pushed the prime rate to 8.75 -- have destabilized the environment. Issuers could afford to offer low rates when the market was steady, but it's volatile now and banks' margins are tighter.

"Issuers are feeling the pinch," says Peter Davidson, executive vice president of Speer and Associates in Atlanta.

Jumping around on teaser rates
Another reason is that customers aren't loyal to the low-rate cards. Instead, they surf and switch from teaser rate to teaser rate.

Banks thought the one-digit, fixed rates would be a good way to get folks to stick around. "I suspect they're finding out that was not the case for as many people as they were hoping," says Davidson.

But the attrition is not just because consumers are fickle. Rock-bottom APRs came with high late fees and penalty rates that people wouldn't tolerate. First USA found that out the hard way last year when a teaser rate/balance transfer glitch bumped a lot of customers to steep delinquency rates, rather than the interim rate, when the introductory period was over. The result was a huge exodus of customers. 

"There's a lot of backlash against that kind of pricing," Davidson says. "I miss one payment on my 9.9 card and now it's 19.8."

Copycat tendency
The third reason the fixed is fading is a case of Simon Says. As the pressure to compete through low APRs eases, banks are inclined to do what their industry rivals are doing.

"Obviously, there are a lot of copycats," says Davidson. "They follow the lead of what the big guys are doing. They figure if it will work for the big guys, it will work for me."

Fleet customers with the low, fixed rates should keep their eyes out for "changes in terms." Card contracts typically include an option that allows the issuer to raise a fixed rate.

Fleet, which merged with BankBoston in October, could not be reached for comment on Friday.

A few options still available
Rate shoppers still have some options -- for now. "There's still a lot of choices for consumers. Capital One is still offering a low rate fixed card and so is Providian," says Dennis Shea, managing director of Auriemma Consulting Group in Westbury, N.Y.

Shea thinks the low rates will disappear over time because people have become so conditioned to receiving these offers the past couple of years.

The fastest way to track down the best credit card deals is by going to Bankrate.com's credit card search engine. Bankrate.com surveys 100 institutions in the 10 largest markets each week.

The other option is to simply call your bank and ask for better terms.

"Most of the issuers are willing to negotiate your rate as an individual once you have an account with them," says Shea. "So that may be a way to get a lower rate."

-- Posted: Feb. 11, 2000