Washington Post Staff Writer

American Express Co. has for more than a year been secretly financing a newsletter that criticizes the interest rates charged by competing bank credit cards.

Bank Credit Card Observer, a frequently quoted publication produced in Kendall Park, N.J., has received -- and will continue to receive until yearend -- a subsidy "likely to approach $500,000," according to the American Banker, a trade publication that broke the story yesterday.

American Express began financing the newsletter a few months before it launched its own lower-interest Optima credit card to compete with MasterCard and Visa. The newsletter -- like several similar publications -- has given editorial credit to Optima for helping to drive down credit card interest rates.

American Express and John C. Pollock, the newsletter's publisher, yesterday confirmed the arrangement but declined to discuss the exact amount involved. Pollock acknowledged that he is getting a monthly grant of $20,000 from American Express.

Colleagues in the consumer credit and journalism fields expressed shock and dismay at the American Express link to Bank Credit Card Observer, although many defended the newsletter's contents.

"It raises doubts about conflict of interest," said Gary Serota, president of BankCard Holders of America, a consumer organization. "There is no indication the data are inaccurate, but it is inappropriate to receive money from any {bank} player."

Reese Cleghorn, dean of the College of Journalism at the University of Maryland and president of the Washington Journalism Review, said that "in general, increasingly newsletters have assumed a very fundamental place in journalism. Those that are independent -- or purport to be -- have to be held to the same standards to which more traditional media have been held. Being in the form of a newsletter doesn't change that."

Bank Credit Card Observer, which costs its 400 subscribers $290 a year, conducts a monthly survey of the largest credit card-issuing banks. It lists banks across the nation that charge the lowest interest rates on credit card balances, along with their annual fees. It also gives the rates charged by the largest banks, as well as the average rate, in 18 major U.S. cities.

According to an American Express spokeswoman, the idea for Bank Credit Card Observer came from Dorothy Gregg, who works as a consultant to American Express. Gregg and American Express senior vice president for public responsibility Meredith M. Fernstrom were "seeking ways to create consumer awareness about interest rates," the spokeswoman said. Gregg proposed that Pollock, who runs a data research service, start a newsletter.

Bank Credit Card Observer was launched in April 1986, less than a year before the Optima card made its debut. The Optima card charges 13.5 percent on unpaid balances, whereas the national average for all bank cards is 17.3 percent.

During 1986 and early 1987 Pollock held news conferences in five cities denouncing high interest rates charged on bank credit cards. The publicity tour was secretly funded from the American Express grant.

Pollock said the American Banker report of $500,000 in secret subsidies from American Express sounded too high, but acknowledged that the amount from his benefactor was "substantial."

American Express said it had furnished seed money and was progressively cutting back its subsidy. Asked why he had not revealed the link with the travel giant, Pollock replied, "No one ever asked about it."

He said there was no conflict of interest because he had complete editorial independence. "We're proud of the reliability of our data," he added. The Wall Street Journal and other publications regularly use BCCO tables of credit card charges.

Pollock denied knowing anything about the creation of the Optima card before the official announcement. At that time he told The New York Times, "This could open up a whole new competitive era in credit cards. Up to now, the really larger banks, which control 75 percent of the credit card business, just have not been competitive."

Two months later, Pollock's newsletter noted, "Curiously, the largest drops in {interest rates} came about after American Express announced its Optima credit card. ... Nothing like a little competition from a national power."

Other publications expressed similar opinions at the time, as did consumer representatives.