NEW YORK -- American Telephone & Telegraph Co., under fire from four banks questioning the communications company's venture into the credit card business, said Friday its Universal Card complies with all federal regulations.
AT&T Universal Card Services Corp., a Jacksonville, Fla.-based subsidiary of the telecommunications giant, launched March 26 its Universal Card which combines the features of a long-distance calling card and of a standard credit card. An added string of incentives turned AT&T's Universal into a strong contender in the credit card business in less than two months.
Citicorp, BankAmerica Corp., Chase Manhattan Corp. and MNC Financial Inc., jointly filed documents Monday with the Federal Reserve Board and the Federal Communications Commission requesting an investigation into the structure of the partnership between AT&T and the bank issuing the card, Universal Bank.
'We have addressed many of the questions raised in the filings,' said AT&T spokesman Bruce Reid. 'AT&T believes it complies with all federal laws and regulations. We feel the complaints are without merits.'
'It is not unusual for questions to be raised about a product that has been enthusiastically received by consumers,' Reid added. 'Consumers have to be made aware that AT&T is in the credit card business for the long haul.'
Universal Card is available at no annual fee for life to all customers who join in 1990 and gives a 10 percent discount for all long-distance calls placed with the new card, including to non-AT&T subscribers.
'We are asking the Federal Reserve Board to look into the way the card is structured, primarily because AT&T is controlling Universal Bank, therefore becoming a bank holding company without permission,' said Citicorp spokeswoman Suzan Weeks.
Universal Bank is a small subsidiary of Synovus Financial Corp., based in Columbus, Ga. The filings pointed out that the area of financial responsibility between the telecommunications giant, with annual revenues of nearly $35 billion, and the small issuing bank, with only $3 million in assets, was unclear.
Weeks said the filings noted that Universal Bank does not have the capital ratio to measure up to the potential risks linked to issuing a large number of credit cards.
'In this case, nobody is controlling the credit risks,' Weeks said.
The filings also requested the FCC to state whether AT&T is entitled to grant discounts on long-distance calls placed with the card without a specific tariff approval from the regulatory communications agency.
'We are asking the FCC how the discount is actually structured, and whether AT&T has the proper permission to do this, or whether Universal Bank received an authorization,' Weeks said.
The filings indicated that Universal Bank could be regarded as a reseller of telecommunications services, in violation of its bank charter.
'There seem to be questions about whether AT&T entered the market properly and regulators will make an assessment,' Weeks said.
Synovus and its subsidiary declined to comment on the filings.
The banks could not say how long it would take the regulatory agencies to issue a decision in the case.
Jonathan Macey, a professor of law with Cornell University in Ithaca, N.Y. and a specialist on banking issues, said he saw no legal objections to AT&T's venture in the credit card business.
'The card is very convenient for consumers and I do not see why consumers should not have the ability to charge their calls and their purchases at the same time,' he said. 'Similarly, if the banks want to offer similar combined services, they should get in touch with MCI or Sprint.'
'The dichotomy between credit and lending, between banking and non-banking activities in this modern era is outrageous,' he said. 'Banks are using these laws as a shield.'
Citicorp, BankAmerica and Chase are the three top credit card issuers in the United States, and Maryland National Bank, an MNC subsidiary, ranks sixth.
