ARLINGTON, Va. — Just as one longtime nemesis of credit union card programs sputters to a halt, another has been jump-started.
According to articles in the business press and a survey of their Web sites, large card issuers such as Bank of America, Chase, Citi, Capital One and American Express have all launched fixed-rate cards with 0% promotional rates for balances transfers. In the case of Bank of America, the rate holds steady for 15 months after the account is opened.
The 0% offers represent a return of one of the more significant bank card marketing strategies of the last decade. From the late 1990s until roughly 2003, credit unions were often on the losing end of balance transfer offers directly mailed to their members by large bank issuers. Since then the 0% offers fallen by the wayside and, particularly in the current economy, the use of direct mail card marketing has dropped drastically.
Card industry analysts say that the overall low interest rates and the trend toward stricter card underwriting have helped bring back the 0% offers. Money is relatively inexpensive now and card issuers are looking for ways that they can draw balances since most of them are moving to fixed-rate cards and away from variable rate products, the analysts explained.
John Pembroke, chief marketing officer for PSCU Financial Services, the payment processing CUSO for more than 500 credit unions, also observed that the 0% offers are one of the only ways the big card issuers can attract new customers as many of them limit the card accounts of current customers or hike their interest rates.
Bill Lehman, vice president of portfolio management for Card Services for Credit Unions, echoed Pembroke's observation and noted that the current economic downturn would likely limit the availability of those 0% transfer offers.
“I don't think its going to be the same [as five years ago],” Lehman said. “I highly doubt those offers are going to be made to anyone who has less than the best paper and credit unions will still have a much larger pool of people to serve than the banks have.”
Another difference is that the larger card issuers are scaling back their rewards programs, according to an article in USA Today.
The Jan. 12 article described how the major issuers are cutting back on credit card reward programs they have deemed too expensive or underused. Among the casualties were American Express' domestic companion airline tickets that it provided free to Platinum and Centurion cardholders. JPMorgan Chase has also announced limited rewards programs and Discover declared that cardholders have to forfeit cash rewards if an account is inactive for 18 months or if they pay more than two months late.
By contrast, companies and CUSOs managing credit union card reward programs have not announced any changes. One, PSCU Financial Services, said further rewards enhancements are planned for 2009.
Pembroke said the 2009 enhancement included expanding PSCU's rewards program to cover more products than just cards and, eventually, working into merchant funded rewards.
“The advantage of relationship rewards, which can cover other products than just cards, is that CUs can use them to drive interest and member use of whatever products they want, whether its home equity loans, auto loans, CDs or whatever,” he said.
The merchant rewards that Pembroke said PSCU planned to offer credit unions could benefit members in a specific geographic area or PSCU could negotiate on behalf of its member credit unions with nationwide merchants like Home Depot.
These merchant-funded rewards will be particularly powerful because CUs will be able to tailor them to their members, Pembroke explained. “Think of what a strong incentive it would be if credit unions could offer their members a card with Home Depot rewards if it knew they shop often at home improvement stores,” Pembroke said.
But while Pembroke and Lehman agreed that the banks' 0% offerings were unlikely to be what they once were, they also advised credit unions to be proactive with their members to keep them from being taken in by other offers. The best way to do that, they said, was to emphasize their long record of being trustworthy ad honest credit card issuers.
“What the members need to realize is while the 0% may appear to be attractive, the credit union has an obligation to educate them via marketing why these 0% transfers are nothing short of a bait and switch scam,” said CU card consultant Ondine Irving.
“With the economy in such a downturn and unemployment at the highest in 30 years, the chances that members may miss a payment by hours or potentially go over their credit line thus kicking in the penalty rate-the chance for the negative effects of these banks cards hitting your members is higher than ever,” Irving said.
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