Time to Promote Responsible Card Offerings?

Since credit unions were largely uninvolved with the practices that lead to the creation of the CARD Act, they are strongly positioned to benefit from the current environment as disaffected bank customers look to establish credit with financial institutions they can trust.

 
 

Negative headlines about financial institutions are commonplace in our current national climate, but one issue in particular has risen above the din in the last few months.

The Credit Card Accountability Responsibility and Disclosure (CARD) Act was signed into law at the end of May. The law was structured around the Credit Cardholders' Bill of Rights, which was developed in order to protect consumers from confusing terminology, excessive fees, surprise interest rate increases, prepayment penalties, retroactive interest rate increases on existing balances, and other unsavory practices that have become staples of many credit card programs.

Portions of the CARD Act are set to be implemented on a staggered schedule, with the first wave in August 2009, and the last in August 2010. Many banks have appeared in the headlines recently as they scramble to enact changes before the legislation goes into effect:

Credit Card Issuers Raising Rates Ahead of New Law – The Washington Post, 7/2/2009

Consumers Hit Again as Some Banks Raise Credit Rates, Fees – USA Today, 7/1/2009

BofA to Boost Rates on Cards with Balances – The Wall Street Journal, 4/9/2009

I encourage you to read some of the public comments that have been posted in response to these articles. Consumers that have never missed a payment or exhibited any type of 'risky' behavior are being directly notified about reduced credit limits, increasing overall rates and fees, restructured rewards programs, and dramatically increasing rates on existing balances. I would wager that someone you know has received one of these notifications in the past few weeks. Many of these consumers view these actions as undeserved penalizations and are understandably upset.

An Opportunity for Credit Unions

Since credit unions were largely uninvolved with the practices that lead to the creation of the CARD Act, they are strongly positioned to benefit from the current environment as disaffected bank customers look to establish credit with financial institutions they can trust. Many credit unions are capitalizing on the recent public interest in credit card practices to promote their transparent and reasonable card offerings. How is your credit union planning on taking advantage of this opportunity?

 

 

 

 

July 31, 2009


Comments

 
 
 
  • My advice to credit unions during this time is to "stay the course". If your card program has been generating $75-$100 annual net income per account, you will be in good shape. This is not the time to hit your members with the SAME changes banks are making: variable rates, increased APRs, increased fees, cash advance fees, etc. You would be surprised at the number of inquiries I've been receiving regarding the variable rate structure. Keep in mind, "rate" is only one part of the income stream: 70% finance charge, 15% interchange and 15% fees. Fees and usage must also be balances. If you have had a huge amount of overlimit fee income in the past, this is one category that needs to be reviewed. Make sure you know beyond the card program ROA (ie net income per account) before making any drastic rate changes to your program.
    Ondine Irving