Discover CEO: Best credit doesn’t mean best rates

Posted Feb. 3, 2010 at 6:43 a.m.

blog-credit.jpgMcClatchy Tribune Newspapers
People with the best credit used to be able to count on the lowest credit card rates. But that’s no longer necessarily going to be the case with the passage of the nation’s new law on credit cards, said David Nelms, CEO of Discover Financial Services, referring to changes under the Credit Card Accountability, Responsibility and Disclosure Act.

The Credit Card Accountability, Responsibility and Disclosure Act will benefit some people and hurt others, said Nelms, who was in Utah visiting the company’s largest call center operation Tuesday, in West Valley. For those with good credit, “the ultra-low rates of the past 10 years aren’t going to be available anymore.”

Nelms, at the helm of Discover since 2004, said card companies such as Discover will move away from “risk-based” pricing toward a more single-rate system for card holders — quite a switch from the wide-ranging rates of the last decade.

For years, the very lowest single-digit rates went to people with the best credit, with the highest double-digit rates going to those with the worst.

Bill Hardekopf, CEO of, a Web site that tracks the credit card industry, said Nelms’ prediction doesn’t come as a surprise.

Over just the past year, “there already are fewer cards with lower rates,” Hardekopf said. “Because card companies are more restricted in what they can do, they appear to be trying to make more money off their good customers. We’re seeing not only higher interest rates, but a cutback in rewards, more annual fees and new fees.”


first part of the CARD Act went into effect last year, with the second phase beginning Feb. 22. The law, designed to help consumers, restricts, among other things, the ability of card companies to raise rates — a primary source of revenue.

Discover has one of the two national “closed-loop” credit card networks (the other being American Express) that issue their own proprietary brand of credit cards. That’s different than Visa and Mastercard, which are credit card networks. (Banks, credit unions and other financial services companies issue cards under the Visa and Mastercard banner.)

In addition to cards, Discover offers a wide range of services beyond credit cards, including depository accounts, certificates of deposit, student loans and personal loans.

But cards remain a core business. According to stock-analyst firm Morningstar, Discover’s credit card network, once much smaller in scope than Visa and MasterCard, is reaching the same acceptance levels of its rivals.

In addition, Morningstar analyst Michael Kon says Discover’s acquisition of Diners Club International is helping expand the company’s network even further.

But Discover, which employs 3,220 people at 2500 Lake Park Blvd. in West Valley, still has its challenges. Nelms says although 25 percent of households have a Discover Card, the company accounts for only 6 percent to 7 percent of the overall credit card volume.

That has led to a number of initiatives designed to get people to use Discover cards that aren’t being charged on, and for those that already are using Discover cards, to use them more.

One of those included coupons last fall in the Sunday newspaper worth $1 or $2 off any purchase made with a Discover card, depending on the region. Exclusive discounts and extra “cash back” on certain types of purchases each month are designed to be another motivator. This year, the company is giving away $1 million to one card holder and prizes of $25 to $500 to 75 card holders each day.

“Some things work, some don’t work,” Nelms said. “We’re always trying something new.”



One comment:

  1. Armida Minus Feb. 24, 2010 at 9:52 a.m.

    I don’t usually reply to posts but I will in this case. WoW