Academic journal article ABA Banking Journal

These Secured Cards Build Long Relationships

Academic journal article ABA Banking Journal

These Secured Cards Build Long Relationships

Article excerpt

Some bankers view secured cards with disdain--as gimmicks that take advantage of financially troubled people. But many of Robert M. Bouza's secured cardholders have had their cards for more than ten years, which indicates a high degree of satisfaction.

"I'm not looking for a quick buck from secured cards, I'm looking to develop a file that has long-term relationships," says Bouza, senior vice-president of Key Federal Savings Bank, Havre de Grace, Md.

One way Bouza keeps cardholders happy is regularly raising the credit line beyond the amount of the deposit securing it. This is not the typical practice with secured cards. Even when they first get the card, his customers receive a $500 credit line secured by $400 in a savings account. "We make more money on a $500 credit line, and small credit lines are detrimental to the customer," he explains. A customer who has a tiny credit line is likely to go over his or her limit and be charged a fee. "I'd rather give the extra leeway so people have room to send in a payment and start over again," he says.

Once a year, he reviews every secured cardholder's file. People who have paid their credit card bill faithfully get an increase. Over time, someone with $600 in the savings account might have a $1,700 credit line. As a result, 41% of these credit lines are unsecured.

Another aspect of this program that keeps cardholders happy is the interest rate on the underlying savings accounts: 4%. "A lot of customers send me the money and throw the card away," Bouza says. "One guy sent us $25,000 and said, 'keep the card. …

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