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PERSONAL FINANCE

'Affinity' Credit Card May Not Be Best Deal

January 30, 1988|Bill Sing

What do the AFL-CIO, Sierra Club, Vietnam Veterans of America, National Football League, National Rifle Assn., UCLA Alumni Assn., Leukemia Society of America and American Automobile Assn. have in common?

Each offers a so-called "affinity" credit card, one of the fastest-growing forms of card marketing. Holding such a card may allow you to divert a fraction of your charges as a donation to the sponsoring organization, which could be a union, hospital, university, social club, mutual fund or other organization. You may also get discounts on merchandise, special buying privileges or other benefits.

More than 1,000 groups offer, or plan to offer, such cards, with the average American getting about seven solicitations a year for them. They are issued by savings institutions through the Visa or MasterCard labels and thus are just as widely accepted as conventional plastic.

Savings institutions like them because the sponsoring organization provides access to its members as potential new cardholders--at a time when it is becoming increasingly hard to get consumers to take new credit cards.

In turn, the organizations like them because they usually get a cut of the fees or interest charges that the bank or savings and loan collects. And consumers like them because they get discounts or other benefits while helping their favorite organizations.

For sponsoring groups, "it's like having a few million billboards out there," says Spencer Nilson, editor of the Nilson Report, a Santa Monica newsletter on the credit card industry. The cards, he says, allow "you to promote the organization" while offering the traditional benefits of plastic.

Greg Spagna, president of the financial services group of Market Facts, a New York market research organization, notes that the most popular cards provide some benefit to the consumer as well as the sponsoring organization. One of the most popular newer cards, he said, allows holders to earn frequent-flier miles on American Airlines. Other airlines, such as Eastern and United, also are offering or plan to offer similar cards.

But are these cards really a good deal economically for the consumer?

In many cases, they are not any better than the majority of other conventional cards, which charge high interest rates and annual fees. Consumers might be better off shopping for a low-rate or low-fee conventional card and donating what they save to their favorite groups separately.

Most affinity card programs carry interest rates of between 17% and 18%--below the national average of 18.3% but still far higher than many cards charging less than 15%, says Elgie Holstein, executive director of the Bankcard Holders of America, a nonprofit consumer group based in Washington.

And their annual fees, usually between $25 and $50, are typically higher than the national average, although as an enticement many affinity cards waive the fee in the first year, notes David Robertson, a vice president at the Nilson Report.

A good example of an uneconomical card, Holstein says, is the one recently launched by the National Football League through Citibank. The card, aimed at football fans, is a Visa card emblazoned with the helmet logo of one of 27 of the league's 28 teams. The card offers holders discounts on NFL souvenir merchandise. Each time the card is used, a donation is made to NFL Charities, which supports a variety of causes.

But the card carries a 17.8% interest rate and a $25 annual fee after the first six months. Consumers who run large credit balances may be better off with a card charging 15% or less, Holstein argues.

And consumers who pay off their credit card balances each month--and thus don't incur any interest charges--would be likely be better off getting a card without an annual fee, he says.

"Groups like the NFL are playing upon the loyalty" of their followers in order to make some extra money, Holstein says. "I think they are abusing that loyalty by negotiating bad deals."

Lists of low-rate or low-fee cards are available from a number of services. Bankcard Holders of America, for example, provides for $1.50 a list of about 60 cards nationwide charging 15% or less. For another $1.50, it provides a list of about 40 cards that charge no annual fee (333 Pennsylvania Ave. S.E., Washington, D.C. 20003).

For $10, the Consumer Credit Card Rating Service, affiliated with the Nilson Report in Santa Monica, provides fee and rate information on more than 500 different credit cards nationally, as well as tips on how to shop for cards (P.O. Box 5219, Ocean Park Station, Santa Monica, Calif. 90405).

Another drawback of most affinity cards: You really don't get much bang for your buck, in terms of donations.

Only a small fraction, usually between 25 cents and 50 cents for each $100 you charge, is given to the sponsoring organization.

Thus, if you charge $10,000 on your card each year, as little as $25 of that may go to the sponsor.

Also, the issuing bank or S&L technically makes the donation, so you can't deduct the contributions on your income tax return.

Perhaps the best deal for affinity cards are two offered by the AFL-CIO through the Bank of New York.

One offers no annual fee, a variable interest rate that is 5 percentage points above the bank prime rate (which would be 13.75% now, based on the current 8.75% prime) and no grace period.

The other charges 7.25 percentage points above the prime, a 25-day grace period and an annual fee ranging from zero to $15, depending on how much is charged on the card (the fee is waived in the first year).

The terms are so good because no donation is made to the AFL-CIO, which used the clout of its 13 million members to obtain favorable terms from Bank of New York, says Nick Nolan, program director.

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