Consumers Cut Back on Credit -But Some Find a CU Oasis
"If nothing else, this a great time for credit unions to grab a bigger share of their members' wallet," said Robert Hackney, president of Card Services for Credit Unions, the association of credit unions that process their card transactions with FIS. Hackney explained that the association has been finding it has often benefited as its members have turned to credit unions for access to credit that they have lost from other bank issuers or found too expensive.
Hackney explained that while there are very small variations in the data, for example between credit unions in states that struggling the most economically and those in more economically healthy states, those variations are very small, about 0.1%. Credit unions overall have seen both the number of credit card transactions and their average balances not only bottom out but begin to increase, he said.
This is at odds with the overall market for revolving consumer credit. According to the Federal Reserve, overall revolving credit from bank card issuers has dropped on an annualized basis for 11 months in a row. The Fed's preliminary figure for August showed that overall revolving credit dropped by 13.1%, the largest single monthly drop since February.
By contrast, the Fed's data indicates credit union's revolving credit has increased by $2.8 billion, or almost 9%, since the first-quarter 2008 when it registered a small downturn.
Other executives were even more bullish on credit union card prospects and activity.
John Pembroke, chief marketing officer for PSCU Financial Services, said the numbers of credit card transactions from its more than 500 member credit unions, have increased over the same period last year and that their average balances are also higher.
"Credit unions have two strong advantages during these economically challenging times," Pembroke said. "Very good rates and strong service. Those have proved to be strong drivers of card use among credit union members even as other consumers stop using their cards."
Credit unions have also benefited from not having cut their cardholder's credit lines like other issuers have, Pembroke noted, and from offering credit to a growing number of new members.
Credit unions have long battled major card issuing banks to have their cards become their members' preferred or top of wallet card. They have often suffered from taking a very conservative position on card underwriting, remaining with card platforms such as classic and gold while other issuers moved on to platinum and signature and a reluctance to offer rewards programs.
But as the major card issuers have cut credit lines, raised rates and hiked fees, credit unions have sometimes benefited by being the last and best credit card issuer for the member.
"Maybe a credit union member has carried their credit union's card for some time, but it has not been their primary or go to card," said Jeff Russell, CEO of TMG Financial Services, the card portfolio purchasing arm of The Members Group. "Now, with all that has happened, it's like members are rediscovering and going back to their CU cards-and are often grateful to have them."
Credit unions have been reporting to all three issuers anecdotal accounts of members turning to credit unions to restore credit lines or provide lower rates and fees than their previous, bank-issued cards. Russell pointed out that this has been particularly good for credit unions because the member is often making a decision to more fully use a card that has already been underwritten.
But as banks cut back on their extension of revolving credit, it is necessarily good for credit unions that they pick up the slack? Are banks merely transferring their revolving credit risks to credit unions?
Pembroke said he doubted how much increased risk would be a factor, noting that credit unions have been known for very conservative and sound underwriting and that this would likely continue. Cards to new members, he pointed out, would be underwritten with guidelines that reflect the credit union's current risk profile and attitude.
Russell advised all credit unions to routinely check their members' credit lines for whether they are still appropriate to their income levels and to pay particular attention when a credit line that has long been dormant or had one level of spending moves suddenly up to a higher level of spending.
"Does the additional spending indicate a sudden need for credit, which might be better addressed with a fixed-rate loan?" he asked. "Does it represent spending to meet day to day expenses, which can be a sign of financial stress? What is going on with that member?"
Russell remained confident, however, that credit union delinquency and default rates would remain significantly below that of bank-issued cards, even though they might rise. As a rule of thumb, he said, TMG's research has found that credit union card loss rates have been roughly 42% of that of banks.
"There have been times when that ratio has been as low as 35% and as high as 45%, but we have found most of the time it hovers around 42%," Russell said.
But even as credit unions increase their share of the market for revolving credit, the executives acknowledged that it is a bigger percentage of a significantly smaller market. None of them expected, for example, as big a holiday boost to card balances that had been the case in previous years.