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Credit Card Pricing: Navigating a Post-CARD Act Market

New legislation changes the credit card game.

June 17, 2011
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Credit unions nationwide face a new, revamped market. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 changed entirely the conditions under which financial institutions must operate.

But according to a CUNA Operations, Sales and Service Council white paper, the CARD Act gave also credit unions several advantages over other credit card issuers.

New legislation drastically limits the late payment and penalty fees credit card issuers can charge cardholders, according to "Credit Card Pricing: Effective Strategies for a Post-CARD Act Market."

Credit unions earned very little revenue from such fees before the CARD Act; only banks profited much from these fees.

Banks are now raising interest rates, reducing credit limits, and eliminating rewards programs to compensate for lost revenue, the white paper points out.

Frustrated with banks’ deceptive pre-CARD Act policies and poor post-CARD Act service, consumers will be looking for alternative credit card providers. Exemplary service and personal relationships during the economic downturn proved credit unions’ consistent devotion to consumers.

But credit unions must now advertise this service to attract new members.

Research shows:

  • Banks cut $800 billion in credit lines in 2009, while credit unions increased their credit lines about 4% from $104.4 billion to $108.1 billion.
  • In 2009, penalty fees constituted 8.3% of issuers’ revenue. Just 5% of credit unions’ revenue came from penalty fees.

The industry continues to debate the use of fixed rates or variable rates, the paper notes. Here’s why:

  • Variable rates give consumers the ability to avoid getting stuck at a low interest rate as the market improves.
  • With the new CARD Act requirements, variable rates require more administration, because changing the margin on a rate is a change in terms, and thus, must be announced in advance.
  • Large economic shifts are unlikely so variable rates are probably safe, although few credit unions have made the switch.

The CARD Act and other recent legislation also aims to make rates more transparent to cardholders. Now credit card issuers are required to tell consumers about any changes to their account 45 days beforehand, giving them the chance to opt out before their policy changes.

They also can’t make changes to an account in its first year.

Advice for credit unions:

  • Be flexible and adapt to market changes.
  • Monitor rates closely and assess risks regularly.
  • Review product mix and performance at least annually.
  • Be sure product offerings fit membership demographics; rates and fees are key to consumers’ decisions about credit cards.
  • Implement rewards programs to drive loyalty and revenue, but keep a “vanilla” option available as well.
  • Be innovative to beat out the competition.

Overall, credit unions must let consumers know what they can do for them.

“Credit unions have been the sleeping giant in the industry,” says Chris Joy, strategic portfolio consulting group director at PSCU Financial Services, St. Petersburg, Fla. “They have all the features and function you can get anywhere, and that total value package needs to be at the forefront of any marketing they do.”

"Credit Card Pricing: Effective Strategies for a Post-CARD Act Market," is available free to members of the CUNA Operations, Sales, and Service Council. The price is $50 for nonmembers.

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Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

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