New business tax cuts, a new Federal Reserve chair and lowinflation set the stage for interest rate hikes going into 2018.Speculation projected three hikes last year, but only two occurred.This was no surprise to industry experts who surmised a third ratehike would be unlikely because the economy was not in a position tosupport one. Most of the tax cuts set forth in President Trump'stax plan would not take effect until 2018, and would affectbusinesses more so than consumers. Plus, inflation was a marketfactor and growth seemed to be slower than expected.

How Much the New Tax Cuts Will Affect RateHikes

Well, it is now 2018 and the tax plan just went into effect.Businesses are positioning themselves to take full advantage oftheir tax rate plummeting from 35% to 21%. That's good news forthem. It's good news for the Feds too. The potential for interestrate hikes has directly increased as a result. Toward the end of2017 many investors thought there might be only two hikes in 2018because of inflation. The attitude of the markets certainly seemedto be positioned that way, and who could blame them? Sluggishinflation coupled with a sluggish growth rate usually meansinterest rates will remain the same.

However, the last half of 2017 saw a marked change. Whileinflation remained somewhat flat, growth increased substantially.The fast pace of growth in juxtaposition to flat inflation means wecould see a potential three-quarter run of 3% growth. The last timethis happened was 2005. Add in the relief from the tax cuts and wecould potentially see four rate hikes this year.

Small Rate Increases, Long-Term Impact

What does this mean? Rate hikes are likely to continue through2019 and 2020 because the Feds have a favorable view of theeconomy. Opinions vary on just how many rate hikes there may bethough. Some economists believe there will only be two. They citeflat inflation as the main cause, coupled with the viewpoint thatmost of the growth in 2018 will be due to business, rather thanconsumer spending. Others say there could be four rate hikes due tothe strength of the economy and a bullish labor market.Interestingly enough, dot map plots by Fed chair members projectmore than two rate hikes in 2018.

So while the jury may be out as to the number of rate increaseswe can expect, the stage is set for continued upward movement.Steady growth, politics and slowly rising inflation are the perfectstorm for long-term rate hikes. And though percentage hikeincrements may be small (quarter percent increments), they couldhave a substantial impact on lending long-term.

Auto and home loans will be at least slightly affected. Aquarter of a percent increase on an automobile loan may not be asnoticeable as on a home loan, and neither are likely to break thebudget for most consumers. If anything, impending rate hikes mightjust push the savvy consumer to sign and close before the nextincrease so they can save over the lifetime of their loan. Creditcard lending is another story altogether. Rate increases can affectAPRs almost immediately since credit card terms are more fluid.This could have a big impact on how consumers view credit cardspending.

Rate Increases and Your Forms

Regardless of lending type, each rate hike will affect yourforms. If the Fed increases interest rates four times in 2018, yourforms will be affected each time. And remember, the rate changedoes not just affect your lending forms; disclosures are alsoaffected. They will need to be updated to reflect the new changeseach time they occur. Therefore, make sure you are on top of yourcompliance game. One misstep with compliance could cost youthousands, or affect your charter standing if you find your creditunion in a worst-case scenario event.

You really cannot fault the compliance officers though. Theywant to make sure consumers are not being taken advantage of orbeing misled with old, outdated information. No credit unionpurposely tries to mislead, but it can be easy to get caught up indaily operation procedures to the point that some things getmissed. Forms compliance is not a ball you want to drop.

The best way to do this is use an excellent forms provider. Yourprovider should offer forms packages that:

• Comply with all state and federal regulations;
• Easily integrate with your data processor;
• Are available in multiple formats;
• Are custom-built to match your credit union's uniqueofferings;
• Are properly branded to your credit union; and
• Can be easily updated to “go with the flow.”

Furthermore, your provider should be available to answer anyquestions you may have at any moment. Rate hikes affect every typeof lending form from home and auto loans to consumer credit cards.Should you have questions about a particular form change, yourforms provider should be accessible. If not, maybe it's time for achange. It is 2018 after all. Resolutions are the order of the day.The Fed has made its resolution clear – to increase rates. Are yourforms prepared to handle it?

Richard Gallagher is CEO of Oak TreeBusiness Systems, Inc. He can be reached at 800-537-9598or [email protected].