The credit card market in the wake of the Credit Card Accountability, Responsibility and Disclosure Act may be the most favorable ever for credit union card programs, according to a leading credit union card analyst.
"Credit unions have a tremendous opportunity to increase their overall bottom line with the credit card product," said Ondine Irving founder and CEO of Card Analysis Solutions. "Gone are the days of trying to cross sell to existing members-this is the time to gain new members, [and offer] new credit cards and other CU products and services," she said.
Irving joined other card industry analysts in their estimate that while the CARD Act has made aspects of issuing cards more difficult and expensive in some ways, the impact on the industry has been magnified by the reactions of most of the biggest card issuers to the new regulations.
"The games the banks are playing are affecting all cardholders regardless of credit score-even the most creditworthy consumers are seeing rate increases and new annual and inactivity fees," Irving said. "Credit unions have never had this type of open opportunity or national media exposure, ever."
Bill Hardekopf, CEO of LowCards.com, a Web site that tracks credit card rates and fees, said that large card issuers reacted to the act by steadily increasing rates on all their cards, no matter the borrowers' credit stores.
On Hardekopf's credit card index, average interest rates on cards have climbed to roughly 13.5% as of press time. Six months ago, Hardekopf reported, they were at 12.7% and a year before 11.5%.
In addition, as interest rates have climbed, the big issuers have also significantly increased fees, according to LowCards.com and others that track the card industry. Beginning in fourth-quarter 2009, annual fees began to reappear on some accounts and balance transfer fees had begun to climb upward as well. Further infuriating consumers, some issuers began tacking fees onto inactive cards and on cards without revolving balances.
All this has served to highlight the difference in credit union cards and to make them, particularly ones with fixed rates, popular with consumers even as Hardekopf noted that fixed-rate cards have become very hard to find.
The variable APR's will allow issuers to protect their margins if interest rates rise, but Hardekopf also reported that some big issuers have raised their minimum payments to 5% of the balance, trying to beat the CARD Act requirement that any amount over the minimum payment go against the balance with the highest interest rate.
Irving also urged credit unions to largely abandon their efforts to market cards to anyone under age 21. Calling it a personal opinion, Irving said that those under 21 do not need to establish a credit history unless they are employed.
"There is enough turmoil in the student loan market and students graduating with thousands of dollars of debt. Why would a credit union want to contribute to that?" she asked. "It is not responsible lending. In the past, credit unions followed the banks. But think about it. Marketing to college students is a no no in my opinion. Yes, the option should be available to those under 21, but I would not recommend any targeted campaigns to those under 21. Once a student graduates, gains employment-then offer them a credit card."
But other credit union executives, particularly those in credit unions with significant numbers of student members, have argued that a credit card with a low credit limit could be a important to help students build credit history and improved credit scores (see related story page 1).
She also advised that credit unions move more of the marketing attention away from rewards cards that are designed to drive usage and instead start promoting balance transfers onto lower rate cards that are designed to help consumers draw down debt.
"Consumers are focusing on getting out of debt," Irving said. "Credit cards are the devil child right now. As of Feb. 1, consumer credit card debt exceeded $880 billion dollars. The nation is wanting to get back to cash. Therefore, the opportunity lies in balance transfers-not usage as reward programs promote. Yes, there will still be a market for reward programs, yet for now the low interest rate, low-fee credit card program is what the majority of America needs, and credit unions can fill that niche," she added.