To charge or not to charge

Consumers, still cautious about spending, may soon be hit with another blitz of advertising aimed at encouraging them not only to use what credit they have but to apply for more.

As the credit crunch eases and Federal Reserve controls are eventually lifted , as most economists now expect, watch for a vigorous credit-card marketing campaign -- particularly by the banks.

The annual fees and higher interest rates brought on by President Carter's credit-tightening moves of three months ago may be here to stay. Even the current drop in card use, card applications, and stepped up cancellations are not expected to make consumer credit much cheaper.

"We're trying to figure how much of our decline, if any, is the result of our fee. . . . But we're committed to it because we like to make money," explains Kenneth Keck, vice-president and head of the charge card division of Chicago's Harris Bank. Harris put a $20 annual card-holder fee into effect in early June, and cancellations have been running about 2 percent.

"The credit restraints just give banks an excuse to make their card business more profitable -- at a time when many were beginning to wonder: 'Why bother with it?'" says Dr. Richard Peterson, senior research scholar with Purdue University's Credit Research Center.

Indeed, many large banks, such as those in New York where fees have not been imposed and where interest rate ceilings are strictly limited by law, have been intensively shopping for states, as card headquarters, which would allow them to charge their credit customers more. Citibank, among others, has been looking at South Dakota where interest rates as high as 24 percent are allowed.

The fact that even so-called "free riders," who avoid interest charges by paying their bills promptly and account for as much as half of the bank card business, must now pay an annual fee adds them to the ranks of bankers' valued card customers. Before they were considered a drain on profits.

Since the credit crunch, Master Charge has confined its ads to alerting customers to its change of name: Mastercard. Visa, the other major bank card, completely canceled its usual summer advertising campaign last April. But a few banks have already started to raise customer credit limits again and encourage new applications. Conceivably by fall or winter a more aggressive marketing campaign may be under way.

One key element of the fresh push is expected to be the debit card which immediately deducts the amount charged from the customer's deposited funds rather than from his line of credit. Visa already offers the card through 140 banks, and Mastercard hopes to offer a debit card by 1981, according to spokesman Tim Connor.

"I really think the debit card is going to be the vehicle of the future," comments Ray Litman of the Ameri can Bankers Association (ABA).

ravel and entertainment cards such as American Express, Diners Club, and Carte Blanche have no intention of being left out of the competitive race for credit customers.

They were much less affected by the Washington credit restraints than the bank and gas card industries were, and their promotion efforts have remained intense throughout the crunch. Their stress has been on the distinction between a genuine credit card, such as banks and oil companies offer, and the unique advantages of their own charge cards which operate on a "buy now, pay now" basis.

Diners Club, for instance, has homed in particularly hard on the fact that many banks have lowered ceilings on credit available to their card users and charge higher interest rates than before on unpaid balances.

"How would you feel if someone informed you in front of clients that you couldn't charge your meal because your check was $10 over the maximum limit?" asks one current Diners Club commercial. The message is that you're better off with the advertiser's card, which charges no interest and sets no spending limits, if you want to avoid business embarrassment.

"The purpose of our card is not credit as much as convenience," explains Seymour Flug, Diners Club president. "For banks the worst customer is someone who pays in full in 30 days -- they discourage you from that. But that's our best customer. . . . This whole thing is making the public much more aware of the differences between the two kinds of cards."

Consumers may have become more aware of the differences, but many confess they are still uncertain about how to use credit wisely.

"It's very understandable right now that many credit card holders feel a little bit tricked," says credit expert Emily Card of the University of Southern California. "First they were solicited to apply for credit with large incentives and then suddenly the message from the federal government was that it was not good to charge anything. Many people are very confused about what to do from the standpoint of personal finance and community goodwill."

For many consumers the effect of Washington's credit control moves of several months ago is still to come. Those holding bank cards with First National Bank of Chicago will be charged the $20 membership fee in July, while Continental Bank fees go into effect August 1. And Exxon just sent letters to its 6 million card holders telling them that as of Aug. 1 they will be expected to pay in full within 30 days unless one of their month's purchases totals more than $40. Exxon's minimum monthly payment will be boostedfrom $20 to $30.

But once the rules of the game become clear, credit card issuers are expected to court credit shoppers just as avidly as they have in years past.