Jim Blaine, CEO of the $15 billion State Employees Credit Union, headquartered in Raleigh, N.C., has defended keeping the vast majority of his CU's credit cards at one interest rate, 9.75%. He contends the one rate increases member access to the product and helps the CU keep the plan simple, which, in turn, helps the CU keep costs down.

"The key is member access, not whether we make the most money from each account," Blaine has said.

But advocates of risk-based pricing point out that risk-based pricing can mean that some credit union members, even those with lower incomes but who pay their bills on time, could see their card rates decrease.

"There is a feeling out there that risk-based pricing makes all cards more expensive," card analyst Ondine Irving has said. "But for some members it will mean the rates go down."

Still, going to a risk-based approach to its card program was a nervous moment for the $284 million Shell Federal Credit Union, headquartered in Deer Park.

"Moving to risk-based pricing of our credit card portfolio was pretty scary," recalled Sharon Hicks, credit card services manager for the CU. The credit union decided to take the step after starting to process with TNB Card Services and asking the processor to help them analyze the slowing portfolio.

Shell brought roughly 4,400 credit card accounts to TNB and in mid-2006 began implementing the risk-based pricing strategy. The approach worked well, and in 2007 the credit union updated its pricing tiers, Hicks said, "to adapt to market conditions and drive additional growth."

"Our initial push toward risk-based pricing was designed to bring our card program in line with our other loan products," Hicks explained. "Our card program was the last product in our loan portfolio that wasn't based on credit score, and we wanted all our loan products to be consistent."

One of the barriers the CU had faced to risk-based pricing was difficulty from its previous processor in managing the implementation of the new pricing schedule, Hicks explained.

In addition to a migration to risk-based pricing, the portfolio consultants recommended that Shell FCU begin regular promotions to drive activity and interest among cardholders and generate new cardholder business.

"Prior to moving the portfolio and updating the pricing, we didn't promote the card program very much," Hicks conceded.

"TNB recommended that we drive card usage through usage and retention programs as well as a balance-transfer promotion. We have done that, and the combination of those promotions, our attractive pricing, and a very strong introductory rate of 2.99% to generate new cardholders has really driven the growth of our card portfolio."

As of the end of 2007, Shell had grown its cardholder base to 6,800 accounts, a 56% increase over the number of cardholders when it converted to TNB as its processor. Since the conversion to risk-based pricing in mid-2006, Shell grew the card program's outstanding balances to $10.5 million by the end of 2007, a 25% increase over the $8.4 million in balances it held just 18 months earlier.

In 2007 alone, Shell opened nearly 1,000 accounts, representing cardholder growth of nearly 17% in a single year.

In addition to the promotional programs that Shell ran with help from TNB, including balance-transfer offers, summer and holiday usage and retention promotions, holiday skip-a-payment deals, and summer reactivation programs, the credit union ran its own cross-product promotion in 2007. That promotion, which offered cardholders a chance to win a Harley-Davidson motorcycle, proved to be very effective, especially since the credit union moved the motorcycle around among its four branches to heighten awareness among a broad range of members.

For 2008, Hicks said, the credit union will continue its aggressive promotional program, along with its 2.99% new cardholder incentive. The goal, she said, is to add an average of $100,000 in balances monthly throughout the year.

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