SAN DIEGO -- New credit card regulations will banish 150 to 200 basis points of revenue compared to today's average account, PSCU Financial Service's Tom Chandler and Chris Joy told Credit Union Times Best Practices Conference audience here.
To put in another way, for every $3,000 average balance, a credit union can expect to earn $46.81 after the new regs take effect, the men said.
The card vendors provided strategies to replace profits lost due to new restrictions on repricing and payment application, as well as new collateral material requirements. Adjustable rates, cash advance fees and assessing late fees sooner were among the suggestions.
Because lenders will no longer be able to reprice fixed rates or apply payments as they see fit, Joy said interest rate risk is greatly increased.
"Credit unions should consider moving to adjustable rate credit cards, because the Fed Funds rate can only go up from here," Joy, PSCU director of strategic consulting, said. He also predicted the end of 0% financing offers.
When pricing credit cards, Chandler, director of PSCU's Advisors Plus, said credit score agencies can provide average loss-rate statistics according to credit score class. Risk-based pricing would increase according to what is needed to cover increased risk as credit score falls, he said.
Caroline Lane, senior vice president of business development and marketing for Co-op Financial Services, encouraged attendees to offer card rewards programs to members, saying debit card rewards programs are a good way to fight decoupled debit cards, which drain interchange income from institutions yet assume no risk. Interchange income is worth fighting for, she said, because institutions assume risk and pay for system infrastructure and upgrades.
Decoupled cards have also decreased the stickiness of checking accounts, she said.
Credit cards also benefit from rewards programs, which have been shown to increase both transaction volume and amount per transaction, she added.
--handerson@cutimes.com
To put in another way, for every $3,000 average balance, a credit union can expect to earn $46.81 after the new regs take effect, the men said.
The card vendors provided strategies to replace profits lost due to new restrictions on repricing and payment application, as well as new collateral material requirements. Adjustable rates, cash advance fees and assessing late fees sooner were among the suggestions.
Because lenders will no longer be able to reprice fixed rates or apply payments as they see fit, Joy said interest rate risk is greatly increased.
"Credit unions should consider moving to adjustable rate credit cards, because the Fed Funds rate can only go up from here," Joy, PSCU director of strategic consulting, said. He also predicted the end of 0% financing offers.
When pricing credit cards, Chandler, director of PSCU's Advisors Plus, said credit score agencies can provide average loss-rate statistics according to credit score class. Risk-based pricing would increase according to what is needed to cover increased risk as credit score falls, he said.
Caroline Lane, senior vice president of business development and marketing for Co-op Financial Services, encouraged attendees to offer card rewards programs to members, saying debit card rewards programs are a good way to fight decoupled debit cards, which drain interchange income from institutions yet assume no risk. Interchange income is worth fighting for, she said, because institutions assume risk and pay for system infrastructure and upgrades.
Decoupled cards have also decreased the stickiness of checking accounts, she said.
Credit cards also benefit from rewards programs, which have been shown to increase both transaction volume and amount per transaction, she added.
--handerson@cutimes.com
