Credit Card Pricing: Navigating a Post-CARD Act Market

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.