• o New report said CARD Act largely meeting goals.
• o One consequence has been narrowing differences between CU andbank cards.
• o CUs need to stress service and value in their card marketinggoing forward.

Many bank card issuers have abandoned practices viewed asunfriendly to consumers, according to a consumer watchdog groupthat has long been critical of card issuing practices.

As a result, many of the cards issued by the largest bankissuers have come to resemble credit union issued cards. And thismay undermine some CU efforts to market their cards moreeffectively.

The Pew Health Group, the health and consumer poduct safety armof the Pew Charitable Trusts recently released a report entitled“Two Steps Forward: After the Credit CARD Act, Cards Are Safer andMore Transparent-But Challenges Remain.” The report gave credit tothe CARD Act, a major reform of national credit card laws thatpassed in 2009, for most of the changes.

“While it's been less than a year since passage of the CreditCARD Act, the new law appears to be working for millions ofAmericans who have credit cards,” said Shelley A. Hearne, managingdirector of the Pew Health Group. “The elimination of most of theunfair or deceptive practices of the credit industry since we lastsurveyed the marketplace marks a major milestone in the move tomake credit cards safer, transparent and more fair forconsumers.”

Like previous Pew reports, “Two Steps Forward” compared 12credit union and 12 bank issued cards in a survey that allowed theorganization to include 90% of cards issued in the U.S., theorganization said. Further, also like previous reports, the reportdocuments that credit card fees and practices at the surveyedcredit unions remained less expensive and more consumer friendlythan at the surveyed banks. But the latest survey found fewerdifferences among issuers than previous reports.

For example, the organization found that both banks and creditunions had increased their annual percentage rates, but that thesurveyed banks had increased theirs more than had the creditunions. Bank rates, on average, increased more than 30% betweenDecember 2008 and March 2010, while APR's on surveyed credit unionissued cards only moved up 17% over the same period.

Significantly, the survey found that while no banks had retainedfixed interest rates, two credit unions had preserved their fixedrates, which are very popular with consumers.

The report also found that both banks and credit unions surveyedhad largely abandoned the use of over-limit fees.

“Late fees remained a nearly ubiquitous feature of creditcards,” the report said. “However, the presence of over-limit feesdecreased sharply. Less than one-quarter of all cards in the surveyincluded over-limit fees, compared to approximately four out offive in July 2009,” the report added.

One area where the survey found a good deal of differencebetween credit union and bank card issuers came in the area ofrewards, and particularly using the loss of rewards points as waysof penalizing cardholder behavior, such as making late payments orgoing over the limit.

“For the first time, we collected data on loyalty rewardsprograms, specifically on how rewards may be used to penalizecardholders for late or over limit behavior,” the organizationwrote in the report. “Five banks and 23% of surveyed bank cardsdisclosed restrictions on the ability of a cardholder to collectrewards while in penalty status.

At least one issuer may withdraw already issued rewards forcardholders who are 60 days or more past due. No credit unionsdisclosed using rewards programs as a penalty mechanism.”

But even as differences between bank cards and credit unioncards have narrowed, they haven't gone away entirely. CU cardconsultants said credit unions still need to market their cardprograms with those differences in mind.

“The CARD Act and its regulations have narrowed the gap somewhatbetween bank and credit union cards,” said Chris Joy, director ofAdvisers Plus, a division of PSCU Financial Services.”But creditunions should keep on pressing their service as one of the thingsthey do much better than bank card issuers,” he said. “Creditunions offer the same product that banks do, including rewards,usually at a better price point, but what they do really well isoffer the kinds of service that can help cardholders manage and usetheir cards to their best advantage.”

Bill Lehman, vice president for portfolio consulting servicesfor Card Services for Credit Unions agreed about the CU serviceadvantage, particularly when it comes to cards, but also noted thatwhile the credit union advantage on cards had narrowed, creditunions still need to emphasize the better value their cards offeredfor cardholders.

“Credit union cards still offer lower APRs and fees than bankcards do, even if banks have stopped their most abusive practices,”Lehman said. “Credit unions need focus on that better value as wellas the stronger service. After all, every credit union cardholderis a part owner of the institution that issued that card,” headded.

Lehman also noted that credit unions need to start paying moreattention to cardholder retention as well as acquiring new cardaccounts. “There are signs that bank mail solicitations are ontheir way up again, and we know they are aiming at the highestquality cardholders and that usually means credit union members,”Lehman said. “Credit unions need to start understanding that theircardholders are walking around with big targets on [their back] andstart managing them more efficiently.”

Lehman recommended credit unions start reviewing their cardaccounts more often to make sure they are growing as the member'sneeds grow and remaining in close contact with members about theircard needs.

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