Unhindered by New Law, Cards Benefit From Shift in Consumer Attitudes
The majority of credit unions have seen their credit card programs largely unchanged by the implementation of the Credit Card Accountability, Responsibility and Disclosure Act, and many card programs have received a boost from consumers seeking credit cards they feel they can trust.
The new law had relatively little direct impact on credit unions because most never did many of the things the CARD Act's regulations were meant to correct, according to industry executives. This left credit unions with having to comply with the disclosure regulations and make changes to the information contained in cardholder statements. And many CUs also chose to stop charging members for exceeding the credit limits on their cards, though that fee rarely generated significant income.
"We did have to spend a little time thinking about how to change the disclosures, but we have some pretty smart people and they were able to figure it out," said Kevin Moyle, assistant vice president for the $712 million USE Credit Union, headquartered in San Diego.
The credit union has a credit card portfolio of roughly 16,000 accounts that carry balances, according to the NCUA's statistics from last year, and an overall portfolio balance of roughly $55 million.
USE revamped its credit card statement to reflect the CARD Act requirements, make them even clearer for members and highlight the card's benefits to consumers. Among those benefits, Moyle said, was the decision to keep the card portfolio at a fixed rate after an introductory lower rate on new cards. Feedback from consumers and members reflected a strong preference for fixed-rate cards, he said.
Member feedback and consumer interest in the card has grown in the wake of the CARD Act, Moyle said, but the interest has only translated into a 1%-2% increase in the number of card accounts.
The CU has also seen such a reversal in the charge off rate in its card portfolio that it now considers the last quarter of 2009 the bottom of that trend. USE ended 2009 with a charge off rate of roughly 11% but saw that number shrink to 7.5% in the first quarter of 2010.
Much like USE, the Heartland Credit Union, in Madison, Wis., experienced a "negligible" impact from the Card Act on its credit card portfolio, according to John Wagner, vice president of lending for the credit union. Heartland issues only MasterCard and as of the end of 2009 had a portfolio of about 2,200 credit cards with balances of roughly $3.2 million, according to the NCUA's numbers.
Like USE, Heartland stopped charging an over limit fee and saw only a small dip in income as a result, Wagner reported. But Heartland differed from USE in that it changed its fixed-rate card portfolio to a variable rate to cope with the CARD Act's effects.
"We weren't really pleased to do it, but we calculated that to meet our costs and protect ourselves if interest rates rose, we were going to have significantly raise those rates," Wagner said, adding that the CU blunted some of the resistance to the move by telling members they would be able to keep their current rates, at least for the immediate future. "We explained to them that they would actually do better with the variable rate than if we kept the rates fixed," he said.
But while USE had not seen enthusiasm for its card program translate into strong growth, Heartland reported a surge in its card program, at least in part because of the CARD Act and the increased consumer attention to cards.
Wagner reported that Heartland has seen a 270% increase in the number of new card accounts issued in the first quarter of this year versus the same time period last year. Additionally, the credit union has seen its balances increase 12% over the same period, an impact Wagner called "incredible."
Richard A. Casamassa, vice president for member service operations for the $1.6 billion Municipal Credit Union, headquartered in New York City, affirmed what other CU card executives reported. The CU, which has a portfolio of roughly 46,000 cards with balances of about $118 million, also felt little direct impact from the CARD Act.
The credit union has felt the CARD Act's indirect impact in its balance transfer program, which, Casamassa reported, has moved up sharply since the first of the year, increasing from $200,000 in January to $300,000 in February and $600,000 in March.
"We have seen a great deal of growth in our balance transfer program as news about our card program has gotten out," Casamassa said.
Nic Peterson, director of operations for the $1.3 billion Affinity Plus Federal Credit Union, said the CARD Act had little impact on Affinity because the credit union had already made a lot of the changes the new law mandated.
Affinity has a card program with roughly 32,000 card accounts with balances worth about $75 million overall.
About three years ago, Peterson said, Affinity reviewed all of its products and services to make sure they were all as good for members as possible. As part of that review, the credit union changed some of its card program's features. For example, Peterson said, the CU set up its over limit fee so that a member would almost have to intentionally send his or her card over limit to trigger it.
"We obviously couldn't have known the CARD Act was coming," Peterson said, "but it turned out we were ahead of it."
Peterson reported that Affinity had only one card, a platinum rewards cards, and kept its fixed-rate card after determining that it was best for its members. It had already also been applying payments to members' highest balances first, thus anticipating another CARD Act requirement.
Since the CARD Act came into effect and drew increased attention to Affinity's card program, Peterson reported the credit union has seen new accounts double and credit card balances increase by $10 million.
"Some of that is bound to include purchases too," Peterson said, "but I think overall it was about 60/40 balance transfers."
But not all credit unions have emerged relatively unscathed by the new law.
Michael Poulos, CEO of the $550 million Michigan First Credit Union, headquartered in Lathrup Village, reported that his credit union had seen little but expense from the CARD Act. Much of the expense had come from hiring legal consultants to rewrite the disclosures, and the CU also had to cut back on its student credit card since few parents wanted to co-sign on a card for their son or daughter.
Michigan First also had not seen any of the indirect benefits seen by other CUs, Poulos said.