An asset and liability management consultancy argues that many credit unions risk giving up a unique and powerful niche in the overall credit card market if they rush to change from fixed rate credit cards to those with variable rates.
Jack Brick, president of Jack Brick Associates, a credit union consultancy headquartered in East Lansing, Mich., observed that the drop in fixed rate cards among the large issuers can only help credit union card accounts to shine all the more.
"We know that fixed rate cards are, by far, more popular with members," Brick asserted. "It's just not clear to us why credit unions should rush to give them up."
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Under the most recent credit card reform law, credit card issuers are required to give card holders 45 days before changing the rates on fixed rate cards and, even then, the new higher rate will only apply to credit card balances going forward. Balances at the older, lower rate, would still be revolved and paid off at that rate.
But credit cards that carry a variable interest rate will see their rate move more freely following an interest rate index and cover the whole card balance. This has led some card analysts to urge credit unions card issuers to switch to variable rate cards to protect themselves from potential interest rate risk.
But Brink pointed out that during past interest rate hikes credit union card issuers either did not raise their card rates or, if they did, did not raise them to match the broader rate increase. He also noted that credit unions, as financial institutions, are better prepared than its members to manage a change in interest rates.
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