ARLINGTON, Va. - Can credit unions maintain and exploit anapparently growing difference between their own card programs andthose of other issuers? While consumers have long been familiarwith the notion that credit unions' customer service forcardholders exceeds that provided by other card issuers, relativelyfew may yet have discovered that, on average, credit unions' cardgrace periods are significantly longer as well. Among card issuersoverall grace periods, the time between when a cardholder makes apurchase with a credit card and the time they must start payinginterest on the loan, have been shrinking. According tocardweb.com, a site on the Internet that tracks card trends, theaverage credit card grace period has fallen from 29.7 days in 1990to 20.6 days in 2003 as banks and other card issuers have sought toshore up their card account revenue. Not so with credit unions. Bycontrast, credit union card grace periods average 25 days, aninterval which they seem inclined to hold. This gap could offercredit union card marketers yet another way they could help makesure their members understand how their cards differ from those ofother issuers. "We definitely tell our members who attend ourseminars that grace periods can be one of the things they can pointto if a member brings in a very low interest card offer and wantsto know why they shouldn't switch," said Sue Chrzan, communicationsspecialist with Card Services for Credit Unions. CSCU is theassociation of credit unions, headquartered in Clearwater, Florida,that process their credit card transactions with Certegy. Chrzanexplained that grace periods are among the array of things, such aslate and over limit fees, to which cardholders might not payadequate attention if they evaluate cards solely on the basis ofannual percentage rate. "This is part of the overall credit cardpackage from credit unions that is significantly different andbetter for the cardholder," she added. Pressures On The GracePeriod? "The grace period between 1990 and 2003 have changedbecause the overall card market has sharply changed," explainedChris Theoharides, president of Advantage Consulting Group, a cardconsultancy firm headquartered in Massapequa, New York, thatspecializes in helping groups seeking to issue cards find a cardissuing partner. "As pressures have mounted on card programs bottomlines, card issuers have had to take steps to try to buildprofitability into their programs," he explained. "Some of theseinclude what are called the nuisance fees, the late fees and overlimit fees and some include the shorter grace period." Even thoughit would seem that card programs should remain very profitable (theaverage annual percentage rate nationwide is still 14.71%,according to cardweb.com), there are still downward pressures onprofitability, Theoharides contended. The two biggest culprits arethe very low interest introductory card offers which often settheir APRs at 0.00% for between three and six months and cardrewards program that many cardholders demand but which also helpundercut card program profitability, he added. Other culpritsinclude rising loan losses and bankruptcies, as well as the loss ofannual fee income and the practice of some card holders ofswitching from card to card to keep their rates low. The latter inparticular hikes marketing costs and mean the card issuer neversees a revenue stream from that card account. "It's really a way totry to build more income into their card programs," Theoharidessaid. "It's that simple." But don't credit union card programs facethe same pressures? How long can they keep their grace periods atthe possibly generous average of 25 days? Probably a long time,Chrzan said. She pointed out that because well marketed andmaintained credit union card programs generally have high rates ofcardholder satisfaction, they generally don't need the very lowinterest rates offers that have helped bring pressure to other cardissuers. That same loyalty tends to mean that credit unioncardholders are likely to stick around to carry balances on theircards that will generate income from their finance charges. "Wehave data now from the Raddon surveys that show that credit unioncardholders are among the most loyal credit union members and thosemost likely to have other credit union products," Chrzan observed.She also made the point that credit unions shouldn't necessarilyassume that their entire membership of card holders want a rewardsprogram that would cut into their card program profitability. "Acredit union should definitely know their membership and get a feelfor whether members want a rewards program or would be a happierwith a low rate card from an institution they can trust with greatcustomer service," Chrzan added. -

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