Credit unions are evaluating whether to switch their fixed rate interest rate credit cards to variable rate cards in advance to the change in federal laws governing credit card issuance.
Under the new rules, credit card issuers will not be able to change the interest rates on existing balances of fixed rate cards unless, for example, a cardholder is more than 60 days delinquent. But the new rules allow variable rates to be increased if they are indexed to an interest rate that is set by someone else, such as the Federal Reserve's prime rate.
This change has led many of the largest card issuers to switch their fixed rate cards to variable rate cards and is causing many credit union card issuers to consider whether they should do the same thing, reported executives from card processing firms who are helping the CUs decide.
The executives explained that the decision is complex because it forces a credit union to not only look at the potential credit risk for keeping a fixed rate card, but also the potential marketing advantage of offering one, the cost structure of their portfolio and how they can keep a fixed rate card profitable.
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