
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, April 5, 1991                   TAG: 9104050201
SECTION: BUSINESS                    PAGE: A-7   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

CONSUMER LOAN RATES CRITICIZED

Banks have cost consumers more than $4 billion in the past two years by refusing to lower interest rates on consumer loans while the prime rate and the interest on consumer savings were declining, a consumer group said Thursday.

"Corporate customers are getting big breaks. Consumer borrowers and savers are getting no breaks at all," said Stephen Brobeck, executive director of the Consumer Federation of America.

The federation issued a report saying that from April 1989 to March 1991 rates on six-month certificates of deposit, a common form of consumer savings, declined by 2.8 percentage points, or 15 percent.

During the same period, the prime rate - the interest rate commercial banks charge on loans to borrowers with the best credit ratings - fell by 2.5 percentage points, or 22 percent, the report said.

Yet the rates on automobile loans fell just 0.46 point, or 4 percent, and those on credit card loans rose 0.8 point, or 4 percent, the report said. It said rates on personal loans rose 0.39 point, or 22 percent.

Fluctuations in the prime rate seldom have an immediate impact on consumer-loan rates. Over the long term, however, consistent increases or decreases in the prime rate can affect the interest rates for mortgages and all types of personal loans.

"We have to remember that we are in a recession," said Virginia Stafford, a spokeswoman for the American Bankers Association. "If the question is why have loan rates remained stable when deposit rates have fallen, it is simply because loan losses and delinquencies have climbed due to the recession."

She said credit card delinquency rates grew 46 percent and installment loan delinquency rates rose 12 percent since the second quarter of 1989.

"The lending industry is working to cut those losses, but it is a very real factor," she said. "Certainly the recession has had a very significant impact on the cost of credit, and hopefully as we come out of the recession, some of those pressures will ease."

by CNB