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CU System
Hampel to AP Credit cards less responsive to market
WASHINGTON (12/19/08)--The Federal Reserve cut interest rates this week, but credit card companies may not necessarily do the same, because they are not as responsive to the market, a Credit Union National Association (CUNA) economist told The Associated Press Wednesday. Because more is left to the issuer’s discretion, credit card rates usually are less responsive to changes in market interest rates than rates for home mortgages and auto loans, Bill Hampel, CUNA chief economist, told the news agency. One reason is “floor” rates--pre-determined points below which issuers won’t let the interest rate drop, regardless of how low the prime rate falls--which are usually embedded in the fine print of card agreements, the news agency noted. If a card’s rate is based on prime plus 5%--for example--with a designated floor of 10%, the card’s rate would not drop below 10%, even if the prime rate fell below 5%, the news agency said.
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