A side‑by‑side look at earnings performance helps put those differences into context.

CREDIT UNION VS. BANK EARNINGS MODEL
FOR U.S. CREDIT UNIONS AND BANKS | DATA AS OF 12.31.2025
SOURCE: CALLAHAN & ASSOCIATES

Strategic Insights

• Credit unions return value to their member-owners; banks return value to shareholders. For this reason, credit unions consistently run a return on assets well below their banking peers. That’s by design, not distress. In the fourth quarter, it was 43 basis points smaller, 0.79% versus 1.22% for banks.
• Higher rates are rewarding efficiency. Banks’ lower operating expense ratios give them more room to protect ROA as funding costs rise, whereas credit unions continue to absorb higher expenses to maintain pricing, service, and access for members.
• The net interest margin spread and the income tax exemption together help credit unions rely less on non-interest income, which, in turn, allows them to give back more to members in the form of lower fees, better rates on lending and savings products, patronage dividends, and more.
• The cooperative model prioritizes working with members on account challenges rather than offsetting costs through fees. Higher provision expenses indicate a greater willingness to extend credit to borrowers with weaker credit and less ability to repay, absorbing more risk to expand access even as household balance sheets tighten. That’s important during economic cycles when banks tend to pull back toward lower‑risk borrowers to preserve profitability.
• Credit unions use their tax-exempt status to return value to members, but the benefits of credit unions to local economies extend beyond membership perks. According to America’s Credit Unions, the federal credit union tax status in 2023 was valued at $2.9 billion, yet credit unions generated more than $297 billion in economic impact through personal financial support, small‑business lending, job creation, and more. That’s more than $100 generated for every $1 “lost” in tax revenue. What’s more, the mere presence of credit unions in local markets presents $10.5 billion in benefits for non‑members.

Don’t stop here. Dig deeper into the credit union earnings model with a look at how a changing rate environment impacts credit unions of different sizes in different ways. Read more in “One Industry. Different Earnings Models,” available exclusively for Callahan clients in the Callahan Client Portal. Read it today.

The post How Today’s Market Is Stress-Testing Credit Union And Bank Earnings Models appeared first on CreditUnions.com.

To combat inflation, the Federal Reserve drastically raised interest rates, moving the federal funds target range from near zero in early 2022 to 5.25%-5.5% by mid‑2023. The resulting higher prices and borrowing costs reshaped member financial behavior in ways that still reverberate across credit unions today.

CONSUMER SENTIMENT VS. AVERAGE CREDIT CARD BALANCE
FOR SAMPLE SIZE
SOURCE: CALLAHAN & ASSOCIATES

Strategic Insights

• Inflation eroded member confidence and increased reliance on credit. Consumer sentiment hit historic lows in 2022; credit card balances have steadily risen since then.
• Since the first quarter of 2021, unsecured credit card lines in the United States has increased 28%, according to the Federal Reserve Bank of New York. For credit unions, it has increased 18%. That U.S. households are relying on revolving credit more than at any other time in recent history is worrying sign that inflation is still working its way through personal finances.
• Meanwhile, consumer sentiment plummeted from 85.5 in mid-2021 to an all-time low of 50.0 one year later, according to the University of Michigan Survey of Consumers. Households primarily cited concerns over inflation for their dark outlook. According to a study by McKinsey at the time, 65% of U.S. consumers said they were concerned about inflation, 30 percentage points higher than the next biggest concern.
• Inflation compounded the cost of living crisis, opening the door for financial nihilism. Many, especially younger folks, feel the cost of living most acutely; housing, education, and transportation keep many from establishing their footing in today’s economy.

Don’t stop here. After a decade of low inflation, credit unions had to adjust quickly to a very different cost environment. How did sustained price pressures reshape credit union financials and member behavior? Read more in “How Inflation In 2021-2022 Changed Today’s Credit Union Financials,” available exclusively for Callahan clients in the Callahan Client Portal. Read more today.

The post How Inflation Changed Credit Union Member Behavior appeared first on CreditUnions.com.

New data from Vanguard shows retirement readiness actually declines by generation, with baby boomers being the least prepared. That’s a troubling trend for credit unions serving older members. Meanwhile, younger workers are pulling ahead thanks to smarter plan design, escalating savings rates, and earlier access to quality investments.

RETIREMENT READINESS BY GENERATION
FOR U.S. HOUSEHOLDS|DATA AS OF 11.04.2025
SOURCE: VANGUARD U.S. RETIREMENT OUTLOOK

Strategic Insights

• Just 40% of baby boomers are on track to maintain their standard of living in retirement. For those who fall short, the gap averages $9,000 a year, which represents nearly a quarter of retirement spending needs.
• By comparison, 47% of Gen Z is on track to maintain their standard of living in retirement. That gap is $3,000 a year.
• It’s a worrying sign that no cohort has a majority of members ready for retirement, pointing to a systemic readiness gap rather than a planning issue prevalent among individual generations or people.

Credit Unions And Retirement Support

• Helping baby boomers, and the generations that follow, with financial planning and education can go a long way toward moving the needle of retirement preparedness. Specially designed products and services don’t hurt, either.
• In 2022, InTouch Credit Union($808.5M Plano, TX) expanded services for those nearing or in retirement. “A common misunderstanding is that financial planning for retirement ends the day you stop working,” says CEO Kent Lugrand. “In reality, it continues long after.”  The credit union uses a variety of channels — such as seminars, one-on-one counseling, and digital resources — to deliver information in a way that works for all members. Read more.
• In 2025, Golden 1 Credit Union ($21.1B, Sacramento, CA) was named No. 1 on Money.com’s “Best Banks and Credit Unions for Seniors.” Its Golden Prestige package for members 62 and older includes free checks, no monthly maintenance fees, up to 10 free cashier’s checks a month, access to a notary, and 30,000 surcharge-free ATMs. Read more.
• Michigan Legacy Credit Union ($214.4M, Wyandotte, MI) works to make sure members keep their hard-earned savings with a program that helps spot potential for financial exploitation before fraudsters can wipe out accounts. Read more.
• Hanscom Federal Credit Union ($1.8B, Hanscom AFB, MA) offers fun, free interactive challenges via an escape room concept that bring financial concepts, like how to plan for retirement, to life. Read more.

Don’t stop here. Retirement readiness isn’t just about saving more, it’s about helping members feel supported and confident in the decisions they make over time. The Member Engagement & Financial Wellbeing Consortium, powered by Callahan & Associates and Gallup, equips credit unions to take mission-aligned, data-informed actions that change member perceptions and behaviors — driving stronger member financial wellbeing and sustainable, profitable growth for the credit union. Schedule a conversation with Callahan’s program facilitators to learn more. Request a conversation.

The post How Prepared Are U.S. Workers For Retirement? The Answer Is, ‘Not Well.’ appeared first on CreditUnions.com.

The first quarter of 2025 offered a sign that three years of gradual asset-quality deterioration could be slowing; however, subsequent quarters defied that narrative and moved asset quality squarely back into the spotlight for credit unions and regulators.

Although 2025 was not a record year for increases in delinquency, repayment rates did steadily worsen. The overall loan delinquency rate closed the year at 1.02%, the highest level since the third quarter of 2013.

It is not easy for credit unions to address worsening asset quality without making some tough decisions. Digging deeper into the delinquency and charge-off numbers reveals interesting dynamics in product performance by type. Some product repayment rates have stabilized; other products — including some not historically prone to delinquency — have risen in alarming fashion.

ASSET QUALITY RATIO
FOR U.S. CREDIT UNIONS
SOURCE: CALLAHAN & ASSOCIATES

Dig Deeper Into The Credit Union Loan Portfolio

• First Mortgages — Delinquency has dropped slightly to 0.89%, but that’s still high enough to worry credit unions. Homeownership is the foundation of financial health for many U.S. households, and first mortgages are typically the last product to report higher delinquency.  When faced with tough budgetary choices, members usually opt to pay their mortgages before all other debts.
• Other Real Estate — Delinquency has increased to 0.78%. These loans are mostly HELOCs, which have dramatically increased in popularity in the past few years. Many homeowners have tapped into increased home equity to pay for purchases large and small or, more recently, to consolidate other debt. Other real estate net charge-offs remain microscopic, but they have increased 3 basis points annually to 0.05%.
• Commercial — Delinquency fell slightly on the quarter to 0.96%. This is down from last quarter but is 12 basis points higher than one year ago. Commercial lending might not be the priority of many credit union lending programs; however, it has grown as a percentage of credit union portfolios, which makes the rise in delinquency more troubling. Just as troubling is the multi-year increase in net charge-offs, jumping from a low of 0.02% in the first quarter of 2023 to 0.23% in the fourth quarter of 2025.
• Auto — On the brighter side, total auto delinquency held steady year-over-year at 0.96%, a welcome sign following the significant increases in auto delinquency that began in 2022. Although delinquency rates have not returned to pre-COVID levels, the fact total auto delinquency has increased just 6 basis points in the past two years is a welcome reprieve after it increased 48 basis points in the preceding two-year period.
• Credit Cards — Credit card delinquency stayed flat year-over-year, at 2.15%, a positive sign for credit unions and their members. Although steady credit card delinquency often suggests net charge-offs are increasing, this does not seem to be the case this time. Net charge-offs on credit cards have flatlined as well; beginning in 2024, they’ve held steady around 5.00%.

Ready To Read The Full Story? Callahan clients can access the full version of this article right now on the client portal. Read it today. Not yet a client but looking for expert insights to help you adapt to change, develop your organization’s leaders, and stay at the forefront of industry trends? Connect with our team to learn more. 

The post Asset Quality Takes An Uncomfortable Turn In 2025 appeared first on CreditUnions.com.

The K-shape is symbolized by different socioeconomic classes’ ability to withstand the headwinds facing the U.S. economy. For example, with inflation, higher income households tend to own assets that are inflation-resistant. Meanwhile, for lower income Americans, inflation in the cost of everyday items eats up more of their budget. According to a 2023 report from the Federal Reserve, the more money a consumer has, the less stress they are likely to experience as a result of inflation. These diverging impacts and stress levels are present throughout the economy.

A History Of The K-Shaped Economy

For many decades following World War II, economic growth increased at roughly parallel rates for wealthy Americans and lower-income Americans. However, during the 1980s, the haves began to outpace the have-nots. Following the COVID-19 pandemic and the subsequent surge in inflation, the two halves of America began to uncouple further.

The pandemic disproportionately impacted service-oriented workers who could not work remotely, resulting in furloughs and layoffs shortly after the onset of COVID-19. Federal economic relief checks temporarily abated this impact, but then inflation disproportionately ate away at the budgets of lower-income Americans. Although the economy on average has caught up, many Americans have been left behind, living paycheck to paycheck and relying on credit cards to make ends meet.

CONSUMER SENTIMENT, INDEXED TO 100
FOR U.S. HOUSEHOLDS
SOURCE: UNIVERSITY OF MICHIGAN

Why Is This A Problem?

Besides the obvious problems of the less wealthy falling further behind, there are a few ways these diverging paths disrupt the U.S. economy.

When it comes to national economic statistics, struggling households are often left out of the picture. Gross Domestic Product figures don’t necessarily represent how everyone is doing. Specifically, when the poor and wealthy diverge, GDP calculations overlook the median, so it’s important when assessing economic data to consider not only the average or mean but also the median.

This divergence also manifests itself in consumer sentiment. It’s often thought that consumer attitudes diverge from nationwide economic statistics because of widespread pessimism. However, it’s possible that consumer sentiment has diverged so significantly because impressive top-line numbers don’t encapsulate the lived, very real and common experiences of struggling individuals.

The K-Shaped Recovery And An Economy Divided. Inflation, debt, and income inequality are fueling a K-shaped, post-pandemic recovery, widening the gap between different economic segments and challenging lower-income households. Read more today.

What Can Credit Unions Do?

Credit unions should be intimately familiar with the financial wellbeing of everyday Americans. Considering many credit unions — particularly CDFIs and low-income designated ones — are equipped and mandated to help the lowest on the economic ladder, this is a crucial dynamic to understand. Credit unions looking to make a difference can practice the following:

• Financial Education — Having an understanding of finance can give members the tools needed to get their financial house in order. Vantage West leveraged its financial wellness coaching program to help nearly 700 people in its local community build the tools they need to move up the ladder.
• Wealth Building — Financial education is a great first step, but there’s only so much budgeting one can do. At the end of the day, the biggest differentiator between the two sides of the K is the ability to build wealth. Creating opportunities for credit union members to own their own home, deposit into high-yield savings products, or even invest in the stock market can go a long way to helping members catch up.
• Flexibility When Things Go Wrong — Times are tough. Credit unions can make members’ lives easier, and help them avoid falling further behind, by being flexible. Late payment options, reduced fees, and emergency loans all can help prevent members from falling through the income cracks. During times of chaos, these credit unions have built a blueprint for stepping up.

The post What Is The K-Shaped Economy And What Can Credit Unions Do About It? appeared first on CreditUnions.com.

How did all of this play out in the fourth quarter? Watch Callahan’s quarterly Trendwatch webinar to find out. For now, here are a few highlights.

Takeaway 1: Loan Activity Is Picking Up

YEAR-TO-DATE LOAN ORIGINATIONS
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Loan-origination activity is accelerating faster than balances, a sign that rate cuts are encouraging would-be borrowers to get off the sidelines. The 22.95% jump in first-mortgage originations (along with other real estate originations rising 15.46%) indicates borrower engagement is returning even before balances fully reflect it. This pattern typically appears when consumers anticipate lower rates ahead and begin acting on pent‑up demand.
• HELOC balances rising 15.99% and commercial loans up 11.59% signals that borrowers are selectively re‑leveraging where they see value or necessity. While some loan categories are growing, auto remains stagnant, underscoring how that segment remains rate‑sensitive and price‑constrained.

Takeaway 2: Members Are Prioritizing Liquidity

12-MONTH GROWTH IN SHARE SEGMENTS
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Share certificates are losing momentum and may unwind rapidly in 2026. Despite 6.71% growth, certificates are weakening as falling rates and tighter household budgets reduce appetite for termed commitments. With 83.3% of certificates maturing within a year, credit unions face a potential remixing event in 2026 that could pressure funding costs and liquidity planning if members continue favoring short‑term options.
• Money market accounts (up 9.01%) and share drafts (up 7.83%) are capturing the bulk of new deposits, reflecting households’ desire for flexibility amid economic uncertainty. This shift also suggests that consumers are keeping cash accessible as they wait for clearer signals on rates, inflation, and employment.

Trendwatch 4Q25. Explore fourth quarter performance trends and learn about their impact on the industry today with Callahan & Associates. Callahan hosts and industry guest presenters highlight where credit unions are excelling, where challenges are emerging, and how peers are responding. Don’t wait to gain key benchmarks, strategic takeaways, and insights to navigate 2026, watch Callahan’s quarterly Trendwatch webinar.

Takeaway 3: Margins Might Be Nearing A Turning Point

OPERATING EXPENSE RATIO VS NET INTEREST MARGIN
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• • With interest rate cuts already underway, the industry is likely approaching the top of the margin cycle. Assuming rates drift lower in 2026, asset yields should begin to compress, though deposit costs may remain sticky, especially if liquidity preferences persist. The next year will test how well credit unions have positioned themselves for a cooling margin environment.
  • Net income is rebounding sharply as margins stabilize at elevated levels. A projected 31.60% increase in net income — after a decline last year — highlights how effectively credit unions have capitalized on higher loan yields throughout 2025. With ROA at 0.79% and NIM holding near 3.40%, the industry is enjoying a rare window where funding costs and operating expenses have plateaued, allowing more revenue to flow directly to the bottom line.

Takeaway 4: Softer Membership Growth Could Preview Bigger Challenges

ANNUAL MEMBERSHIP GROWTH
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Industrywide, growth has slowed to 2.01%, down from year end 2024, indicating credit unions are struggling to attract new members at the pace needed to sustain long term expansion. This deceleration raises questions about competitive positioning, digital acquisition strategies, and the industry’s ability to appeal to younger demographics.
• Slower member growth may limit future balance sheet momentum. To overcome this, credit unions may need to lean more heavily on deepening existing relationships rather than relying on new member inflows.

Takeaway 5: Asset Quality Is Still Troubling

ASSET QUALITY RATIO
FOR U.S. CREDIT UNIONS
SOURCE: Callahan & Associates

• Delinquency has reached its highest level since 2013, signaling mounting household financial stress. Overall delinquency stands at 1.02%, a decade high threshold, reflecting the cumulative strain of inflation, high borrowing costs, and stagnant wage growth.
• Revolving credit is emerging as the pressure point, with credit card losses climbing. Credit card delinquency at 2.15% and net charge offs at 4.99% show that unsecured credit is absorbing the brunt of financial stress. Even with rate relief on the horizon, the data indicates that many households are already operating at the edge of their financial capacity.

Let’s Review Your Credit Union Performance Data Together. Join a Callahan advisor for a complimentary 1:1 session to analyze your performance reports. We’ll benchmark your credit union against two to three peer groups of your choice and provide a detailed report of our findings at the end of the session to help your team make informed strategic decisions. Request your free session today.

The post 5 Takeaways From Trendwatch 4Q25 appeared first on CreditUnions.com.

What that “change” looks like can run the gamut — from earning additional income, preparing for retirement, or expanding a family to experiencing a job loss or unemployment, making a major investment or purchase, or facing an unexpected expense.

SOURCES OF SUPPORT DURING FINANCIAL CHANGE
FOR SURVEY CREDIT UNION MEMBERS | DATA AS OF 03.31.25
SOURCE: GALLUP

Strategic Insights

• A full 60% of the credit union members surveyed skipped their credit union entirely when seeking advice during a period of financial change. This is lower than the 67% of bank customers who did not seek help from their bank; however, it underlines the work many credit unions must accomplish to fulfill their mission.
• The Gallup study suggests financial wellbeing support starts with channel consistency, digital enablement, and anticipating members’ needs. When taking on debt, just 50% of credit union members said they were even aware of how their credit union could help them through this change. To combat this, Gallup recommends creating a seamless, reliable member experience with smooth transitions between channels; matching members with the right digital tools and actively supporting adoption; and being proactive in understanding where members are in their personal journey and what they might need next.
• Vantage West ($3.4B, Tucson, AZ) taps into its mission to serve members’ needs. Its financial wellness program focuses on coaching and connects members to local nonprofits that support housing, education, economic development, and more. The credit union has served nearly 700 people as of November 2025, further establishing itself as a trusted financial partner in the Tucson area. Read more about Vantage West’s financial coaching program.
• Take note: Financial misinformation spreads fast. That’s why Vantage Credit Union ($1.1B, St. Charles, MO) and Merck Sharp & Dohme Federal Credit Union ($929.9M, Chalfont, PA) ensure their members receive accurate, trustworthy guidance in addition to quality services. Read more about how these credit unions battle social media, educate members on debt reduction, and offer empathy without the embarrassment.

The post When Members Don’t Turn To FIs, They Turn To Friends And Family appeared first on CreditUnions.com.

On Feb. 8, the New England Patriots rush back into the big game for the first time since 2018. Meanwhile, the Seattle Seahawks will make their first showing since 2014. Both teams are riding high on the sudden success of two new quarterbacks — Drake Maye for the Patriots and Sam Darnold for Seattle.

Before these teams battle it out on the gridiron, though, Callahan is showing what smart benchmarking can reveal using our Callahan Bowl prediction model. Because both quarterbacks are new “members” of the Super Bowl club, this year we’re looking at how two regions stack up in terms of attracting new members to the movement.

For the sake of peer comparisons, the Seahawks peer group consists of credit unions in Washington state, whereas the Patriots peer group pulls in performance from Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and the eastern half of Connecticut.

To state the obvious, the NFL is not affiliated with this prediction, nor does it endorse our findings. This is all in good fun. Now, back to the game.

First Half: Member Growth

In football, new teams making a competitive play for the title are what fill stadiums and build loyalty. The New England Patriots have a Super Bowl showing that tips into the double-digits, whereas the Seahawks’ appearances can be counted on one hand. In fact, they haven’t  appeared in the Super Bowl in more than a decade and have just one win to their name.

In credit unions, it’s new members that drive the movement forward. And when it comes to member growth, the Seahawks have a decisive edge. In a classic match up of member growth, Washington state’s credit unions best New England’s 2.54% to 1.31%.

MEMBER GROWTH
FOR U.S. CREDIT UNIONS
SOURCE: CALLAHAN & ASSOCIATES

Second Half: Member Relationships

In the NFL, it’s important that players bring everything they’ve got and leave it all out on the field. If the talent is good enough, such dedication will win championships. And sometimes, like with Sam Darnold and the Seahawks, a player might have a surprising amount to offer.

Although member growth is an important metric in credit union performance, how much new members bring to the table is just as beneficial to the bottom line. And in this respect, New England edges out Washington 2.55% to 2.43%. The game is all tied up and headed into overtime.

AVERAGE MEMBER RELATIONSHIP
FOR U.S. CREDIT UNIONS
SOURCE: CALLAHAN & ASSOCIATES

OT: Branch Expansion

Headed into overtime, both teams have a chance to win. Who has the performance of a champion?

If the best defense truly is a good offense, then expanding branches into new territories is a sure way to score new members. When we crunch the numbers, Washington comes out on top. Credit unions branches in the Evergreen State increased 6.25% quarter-over-quarter; in New England, growth was 0.40%.

BRANCH GROWTH
FOR U.S. CREDIT UNIONS
SOURCE: CALLAHAN & ASSOCIATES

There you have it, the Callahan’s proprietary Callahan Bowl algorithm, or “Cal-gorithm,” has spoken: the Seattle Seahawks will be your Super Bowl LX champions!

The post Credit Union Data Predicts Who Will Win Super Bowl 2026 appeared first on CreditUnions.com.

Drilling down, nearly 26 million credit union members, or 17.7%, have a credit union credit card, and credit unions hold $86.4 billion in credit card loans on their balance sheets. Credit card borrowing at U.S. credit unions has steadily increased since the COVID-19 pandemic as households struggle to keep up with inflation.

In early 2026, the Trump Administration, in conjunction with bipartisan allies in Congress, announced a plan for a 10% cap on credit card rates. The proposal is intended to lighten the load for households and approve affordability in the United States. Many financial services organizations have spoken out about the policy, meriting a closer look at the data for the credit union industry.

CREDIT CARD LOANS OUTSTANDING
FOR U.S. CREDIT UNIONS
SOURCE: CALLAHAN & ASSOCIATES

A Credit Card Cap And The Credit Union Balance Sheet

The credit union earnings model rests on a cooperative’s ability to earn more from its lending than it spends on interest expenses, delinquency, and net charge-offs. Adding a wedge like an interest rate cap forces institutions to make tough decisions about where and how to apply credit. A 10% cap on credit cards, for example, would tighten margins and could limit the ability of credit unions to issue a credit card to certain members.

Although credit unions don’t report the interest they receive on individual loan products, Bankrate reports the nationwide average credit card rate was 20.1% at the end of September. The cost of funds for credit union’s entire loan portfolio is 2.06%. A hypothetical rate cap at 10% would mean the asset quality ratio would need to be less than 7.94% for credit unions to not lose money.

The delinquency rate for credit cards at U.S. credit unions was 2.03% as of Sept. 30, 2025; the charge-off rate was 5.00%. Add this to the cost of funds, and a hypothetical credit card lending program would need to earn a yield of 9.09% to break even — and that’s before taking into account the costs to service the loan. If they can’t charge more than 10%, they’ll need to be more selective in issuing cards.

CREDIT UNION EARNINGS
FOR U.S. CREDIT UNIONS
SOURCE: CALLAHAN & ASSOCIATES

In cases like this, borrowers who have poor credit, no credit, or otherwise risky credit lose out. For credit unions, it’s likely many would simply drop their credit card programs altogether, especially if their asset quality ratio plus cost of funds exceeds 10.0%. If members are regulated out of credit access, they’ll be more likely to turn to Buy Now, Pay Later; payday lenders; loan sharks; and other, less reputable lenders that do not embrace the same fiduciary or financial wellbeing standards as a credit union.

On the surface, capping credit card rates at 10% looks like a win for members and affordability, but dig a little deeper, and it becomes clear that financial institutions will  have to make tough decisions to remain operational. Issuers will have to choose between cutting program perks or even leaving some deserving borrowers out in the cold. If the White House wants to make a difference here, there might be other rate-cap levels that would disenfranchise fewer members, deliver savings to U.S. households, and preserve profitability for many card programs. However, credit unions need to keep the lights on. At 10%, the margin might be too thin to navigate at scale.

The post What Would A 10% Credit Card Rate Cap Mean For Credit Unions And Members? appeared first on CreditUnions.com.

The prospect of a return to 0% interest rates is more enticing than ever for would-be borrowers. After all, rising rates have dampened affordability in the United States. However, are ultra-low rates really in the best interest of the U.S. economy?

As of early February, the federal funds target range set by the Federal Reserve was 3.5% to 3.75%. The Trump Administration is pressuring the Fed to reduce interest rates in hopes of spurring the economy. Traditional thinking also holds that lower rates reduce monthly housing payments, improving affordability and helping Americans afford homes.

But will this work as promised?

A closer examination of the past few times the Federal Reserve has drastically lowered interest rates suggests the central bank is smart to proceed with caution.

The Impact Of 0% Rates On The U.S. Mortgage Market

Following both the Great Recession and the COVID-19 pandemic, policymakers were concerned that lending would completely stall as the economy cratered. In response, the Federal Reserve lowered the benchmark federal funds rate to 0%, deploying what is known as a zero interest rate policy (ZIRP).

Low rates and a cratered housing market made homes more affordable during the initial recovery following the Great Recession; however, affordability has been falling since 2013. Low rates fueled mortgage demand, which in turn boosted housing demand. Unfortunately, structural supply constraints — including chronic underbuilding following the Great Recession, restrictive zoning in many high-demand markets, and rising construction and labor costs — limited the market’s ability to respond to that demand and home values rose sharply. Pandemic-era migration patterns further intensified regional housing pressures. Together, these forces amplified price increases in a housing market already constrained on the supply side, putting homeownership out of reach for a growing share of would-be borrowers.

MEDIAN HOME SALES PRICE
FOR U.S. HOUSES
SOURCE: FEDERAL RESERVE

According to data on housing affordability from the National Association of Realtors, the median U.S. family income in 2025 was only 1% higher than the qualifying income needed to purchase a median-priced home, signaling a tight market for would-be buyers. By comparison, prior to 2020, the Housing Affordability Index regularly exceeded 160, indicating that the typical family earned far more than was required to qualify for a median-priced home. Increases in home prices are reflected in not only the income of home buyers but also their ages, with first-time homebuyers today more likely to be in their 40s than 20s. What’s more, data from NAR shows the share of first-time buyers has dropped to an all-time low of 21%.

The increase in age of first-time homebuyers coupled with the decline in first-timers as a percentage of total homebuyers has contributed to a K-shaped recovery and negatively impacted perceptions of the U.S. economy, contributing to financial nihilism and low consumer confidence.

The Impact Of 0% Rates On U.S. Credit Unions

Low interest rates have impacted borrowers’ relationship with mortgages, and such changes in borrowers’ behavior have far-reaching consequences.

During both 0% interest rate periods, loans per member rose. In fact, credit union members now hold 20% more products with credit unions than they did before the most recent low-interest rate era. As rates go up, however, the lock-in effect pushes members to hold onto their mortgages, further reducing housing inventory, inflating prices, and shutting out would-be homebuyers.

During this period, yield on loans and investments fell from all-time highs to lows that only recently started to turn around. The low-yield environment pushed credit unions to tap alternative revenue streams, such as other operating income or mortgage sales to the secondary market.

Despite the disruption to their earnings model, credit unions have managed to maintain a healthy return on assets and continue serving members. That resilience underscores the central lesson of past rate-cut cycles: Ultra-low rates might feel like a boost to affordability, but they can create unintended challenges that ripple through housing markets, lenders, and the members credit unions serve.

This is an excerpt from a Callahan Exclusive Client Content. Callahan clients can access the full version of this article right now on the client portal. Read it today.

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