Consumer Loan Interest Rates Remain Steep: Even Some Bankers Are Nettled That Falling Prime Hasn't Pulled Down Charges on Other Credits

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CHICAGO -- Though terms for most other types of credit have eased, interest rates on consumer loans have remained stubbornly high, an anomaly that has even raised the hackles of some bankers.

"It's inexcusable to be offering a single-digit prime rate while still charging 15% or more for an auto loan, as many of the major banks are doing,, said Edward M. Katz, president of Amalgamated Bank of New York.

"The money center banks especially should fulfill their responsibilities to the public and bring consumer rates in line with economic conditions," he added.

Mr. Katz followed up his tough talk with action earlier this week by announcing a new round of interest rate cuts on some consumer loans, the fifth time so far this year that Amalgamated has reduced the rates. The bank charges an 11.25% interest rate on new, American cars, 11.50% on foreign cars, and 13.25% on unsecured installment loans. Each rate is a reduction of one-quarter

of a percentage point.

Sermons like that given by Mr. Katz are certain to evoke a chorus of "amens" from consumer groups across the county. Ever since the prime rate began to tumble from 22% in 1980, consumer advocates have been waiting for consumer loan rates to also drop.

Banks have responded by introducing a host of new consumer lending programs with the interest rates tied to some floating index. But the most readily available type of consumer credit -- purchases made with bank-issued credit cards -- are, for the most part, exempt from interest rates that slide with overall interest rates. Credit card interest rates are fixed and still steep.

Interest rates charged by banks on consumer loans generally have declined. Some banks, under political, consumer, or other pressure, have even cut the interest rate on outstanding credit card balances. State Street Bank & Trust Co. of Boston this week cut the annual interest rate on its Visa and MasterCard credit cards to 16.5% from 18%. Mercantile Trust Co. in St. Louis on Monday reduced to 19.8% from 22% to interest rate charged on customers' outstanding credit card balances under $1,000. The cut will reduce interest income by about $2 million annually.

Still, consumer interest rates have fallen neither as quickly nor as far as the prime and other interest rates.

"Given the banks' current cost of funds, which range between 7.5% and 8.5%,. there is neither an economic nor ethical justification for keeping consumer rtes as high as they are at many banks," Mr. Katz said. "They are simply taking advantage of the consumer."

"We've always beeen told that consumer rates lag" other rates, said Stephen Brobeck, executive director the Consumer Federation of America ased in Washington, D.C. "Well, consumer rates have had at least a year to catch up and they haven't."

In fact, Mr. Brokbeck said that interest rates charged by banks on some types of consumer loans have increased, not decreased. Moreover, he added that more banks increased rather than decreased the interest rate on some loans last year.

Rates May Have Hit Bottom

and there may be bad news ahead. Some analysts predict that interest rates on consumer loans may have reached their low point and may not drop any further during the current economic cycle.

Richard Bove, an analyst at Shearson American Express Inc., said the economy is" reinflating." The decline in the value of the dollar, a Federal Reserve Board policy bent on stimulating growth, and strong consumer demand portend higher interest rates, said Mr. Bove.

Banks are not reaping "sinful" profits from the interest rtes they charge on consumer loans, said a spokesman for the American Bankers Association. …