ARLINGTON, Va. — Just as one longtime nemesis of credit unioncard programs sputters to a halt, another has beenjump-started.
According to articles in the business press and a survey of theirWeb sites, large card issuers such as Bank of America, Chase, Citi,Capital One and American Express have all launched fixed-rate cardswith 0% promotional rates for balances transfers. In the case ofBank of America, the rate holds steady for 15 months after theaccount is opened.
The 0% offers represent a return of one of the more significantbank card marketing strategies of the last decade. From the late1990s until roughly 2003, credit unions were often on the losingend of balance transfer offers directly mailed to their members bylarge bank issuers. Since then the 0% offers fallen by the waysideand, particularly in the current economy, the use of direct mailcard marketing has dropped drastically.
Card industry analysts say that the overall low interest rates andthe trend toward stricter card underwriting have helped bring backthe 0% offers. Money is relatively inexpensive now and card issuersare looking for ways that they can draw balances since most of themare moving to fixed-rate cards and away from variable rateproducts, the analysts explained.
John Pembroke, chief marketing officer for PSCU Financial Services,the payment processing CUSO for more than 500 credit unions, alsoobserved that the 0% offers are one of the only ways the big cardissuers can attract new customers as many of them limit the cardaccounts of current customers or hike their interest rates.
Bill Lehman, vice president of portfolio management for CardServices for Credit Unions, echoed Pembroke's observation and notedthat the current economic downturn would likely limit theavailability 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 toanyone who has less than the best paper and credit unions willstill have a much larger pool of people to serve than the bankshave.”
Another difference is that the larger card issuers are scaling backtheir rewards programs, according to an article in USA Today.
The Jan. 12 article described how the major issuers are cuttingback on credit card reward programs they have deemed too expensiveor underused. Among the casualties were American Express' domesticcompanion airline tickets that it provided free to Platinum andCenturion cardholders. JPMorgan Chase has also announced limitedrewards programs and Discover declared that cardholders have toforfeit cash rewards if an account is inactive for 18 months or ifthey pay more than two months late.
By contrast, companies and CUSOs managing credit union card rewardprograms have not announced any changes. One, PSCU FinancialServices, said further rewards enhancements are planned for2009.
Pembroke said the 2009 enhancement included expanding PSCU'srewards program to cover more products than just cards and,eventually, working into merchant funded rewards.
“The advantage of relationship rewards, which can cover otherproducts than just cards, is that CUs can use them to driveinterest and member use of whatever products they want, whether itshome equity loans, auto loans, CDs or whatever,” he said.
The merchant rewards that Pembroke said PSCU planned to offercredit unions could benefit members in a specific geographic areaor PSCU could negotiate on behalf of its member credit unions withnationwide merchants like Home Depot.
These merchant-funded rewards will be particularly powerful becauseCUs will be able to tailor them to their members, Pembrokeexplained. “Think of what a strong incentive it would be if creditunions could offer their members a card with Home Depot rewards ifit knew they shop often at home improvement stores,” Pembrokesaid.
But while Pembroke and Lehman agreed that the banks' 0% offeringswere unlikely to be what they once were, they also advised creditunions to be proactive with their members to keep them from beingtaken in by other offers. The best way to do that, they said, wasto emphasize their long record of being trustworthy ad honestcredit card issuers.
“What the members need to realize is while the 0% may appear to beattractive, the credit union has an obligation to educate them viamarketing why these 0% transfers are nothing short of a bait andswitch scam,” said CU card consultant Ondine Irving.
“With the economy in such a downturn and unemployment at thehighest in 30 years, the chances that members may miss a payment byhours or potentially go over their credit line thus kicking in thepenalty rate-the chance for the negative effects of these bankscards hitting your members is higher than ever,” Irving said.
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