Magazine article American Banker

Arkansas' Cut-Rate Federal Savings Enters the Secured-Card Business

Magazine article American Banker

Arkansas' Cut-Rate Federal Savings Enters the Secured-Card Business

Article excerpt

The latest sign of the surging demand for secured credit cards comes from an Arkansas thrift which by legal necessity is offering what may be the lowest rate on such cards in the country.

Federal Savings Bank of Rogers, which has gained renown for offering low-rate credit cards that conform to the state's strict usury law, began making the secured product available nationwide in mid-November.

Secured cards generally appeal to people who need to establish credit or who have had past credit problems. The line of credit is collateralized by a deposit, which generally earns interest.

Security Minimum Is $300

Federal's products has a variable interest rate, currently at 8%, and requires a minimum security deposit of $300.

The issuer charges a $55 annual fee, and squeezes additional al revenue by allowing no grace period on purchases.

Cardholders may borrow an amount equaling up to 90% of the deposit. A gold version of the secured card, with a minimum deposit of $5,500 and a $70 annual fee, is also available. The maximum secured-card deposit is $10,000.

The extremely competitive interest rate can be attributed to an 11-year-old law that prohibits Arkansas lenders from charging more than 5% over the Federal Reserve discount rate.

"There is nothing we can do about [the law], so we have learned to live with it, turning a negative into a positive," said Clinton D. White, senior vice president and manager of the thrift's credit card division in Little Rock. …

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