The Effective Date of The Consumer Protections Embedded
By Joyce Moed

COLORADO SPRINGS, Colo.–With a bill in place to move up the effective date of the consumer protections embedded in the just-passed CARD Act to Dec. 1, a number of banks and card issuers have been raising card APRs as quickly as possible in advance of the law going into effect.

For the most part, analysts told Credit Union Journal, credit union issuers have not been following suit. But there are some early signs of CU issuers moving to variable rate card pricing over fixed rates.

"I have heard of a couple of credit unions doing that," said Bill Vogeny, SVP, Ent FCU, here, and secretary/treasurer of the CUNA Lending Council. "We don’t have a card portfolio, but if we did I don’t think we’d be doing that. It violates the spirit of the CARDAct."

"However, it’s easy for me to say that," Vogeny admitted. "I’m not faced with severe earning issues other credit unions are."

Vogeny said that some credit unions may have no choice but to raise their rates to counteract the losses they are seeing from charge-offs.

"It’s a real challenge," he said. "It’s a very difficult decision."

The danger, Vogeny said, of credit unions raising their rates, is that they run the risk of being lumped in with the banks, even if they are raising rates less than the banks.

"They can be painted with the same brush as the banks," he said. "We–the credit union industry–have worked very hard to build our reputation. That’s one of the risks credit unions need to consider. However, you have to do what you have to do. I would never criticize anyone for raising rates."

What concerns Vogeny most in a rate increase is that a cardholder can decide to decline the higher rate by canceling the card, and paying off the balance at the previous rate.

"I don’t think that’s what the credit union really wants," he said. "You aggravate a member and force them to take their business to another financial institution."

For those credit unions that are able to make the decision to not raise their rates, Vogeny said this presents an opportunity for those CUs to gain market share.

"I never believed in doing what everyone else is doing," he said. "For the past decade, I think credit unions felt like that had to do ‘me too’ card promotions.  But there’s always been a niche for credit unions if properly marketed for a fair-rate credit card, with fair late fees and a fair grace period for the late payment. If credit unions really drove the message home to their members, that we aren’t going to charge you if you are one day late, you could appeal to members who are battling paying their bills on time every month."

Aaron Bresko, VP of lending for BECU, in Seattle, and vice chair of the CUNA Lending Council said that he doesn’t see credit unions hiking up their credit card fees like banks.

"What we’re doing–we’re changing our fixed-rate cards to variable-rate cards," Bresko said.
Bresko said that hearing "variable rates" does raise red flags to members, so it’s important for credit unions to do marketing.

"I think we just need to tell our story–where we came from," he said. "We’re still there to provide the best value for our membership. This is an opportunity for us to spread our market share."
Bresko said that traditionally, credit unions are known for getting their stories out there.
"We’re very mild, and we need to be more aggressive and show communities what we have, and be more out there," he said.

Ann Legg, VP, marketing, for Cabrillo CU in San Diego, agreed.

"I see this as an opportunity for credit unions to promote the advantages of their cards, such as low or no fees," Legg said. "In addition, most credit unions do not change the rate based on late fees or other actions. In the case of larger credit card issuers, it has been common practice to raise rates to the possible highest rate if the user makes a late payment. Credit unions traditionally don’t do this, and now is a great time to promote that."

How good of a job credit unions are doing to market their cards really varies on the market, Legg said.

"Each credit union is going to have different markets based on their business model," she said. "Are they focusing on serving the community or a SEG or something else? In focusing on these markets, how competitive is their credit card? How cluttered is their marketplace? So it is difficult to say. But I think as a whole, credit unions offer great products and services and are doing a decent job marketing to the audiences important to their growth."

As advice on how CUs can do a better job of marketing their cards, Legg said "I have heard wonderful successes with affinity marketing of credit cards to SEGs. For example, a credit union has a large manufacturer as a SEG and the credit union is able to create plastic with the company’s branding. And recently, there is technology available to allow members to customize the image on the plastic. And since the credit card–and the debit card for that matter–act as mini CU billboards in a member’s wallet, it would be a great advantage to give the member another reason to show it off and use it."

Legg added that there is really not any reason for credit unions to be raising their rates.

"Why would credit unions raise their rates when they don’t have to? Of course, as a member of the financial community, credit unions change their rates to be competitive, but as a whole I think there is a strong case that credit unions are traditionally a better value to consumers."

Mark Fenner, SVP, TNB Card Services in Dallas, agrees that that this is an opportunity for credit unions to gain market share.

"In the clients that we service, we’re credit card growth year to year," Fenner said, noting that growth to be close to 7%, with attrition down almost 8%.

Fenner said CUs need to focus more on marketing their cards to consumers.

"Credit unions aren’t traditionally known as aggressive marketers," he noted, "but I think the advantage credit unions have is the tighter relationships they have with their members. They can educate members on their card compared to what they are seeing in market. This is a great opportunity for credit unions to show these consumers an alternative, and educate their members."

Fenner said credit unions should be promoting a message of reasonable rates, reasonable fees and be educating them on the uniqueness of their card offerings.

"I just think it’s important credit unions get the word out," he said.

Bill Lehman, VP, portfolio consultant services, for CSCU in Clearwater, Fla., said the new rules and regulations coming out do not have a negative impact on credit unions.

"Philosophically, it’s nothing new for us," Lehman said. "We don’t see credit unions changing things because of it. I do see credit unions investigating variable rates, but I don’t seem them raising their rates at all."

What CUs should be doing is taking advantage of the press, Lehman said, noting that he has seen a couple of articles in mainstream newspapers telling consumers to seek out credit unions.
Another idea Lehman suggested is direct mail.

"Now is the time to start some acquisition campaign, concentrate on acquiring accounts–focus on acquisition," he said.

Lehman does not expect banks raising their fees to have a negative impact on credit unions’ reputation by being lumped as all financial institutions are raising their fees.

"However if you sit in your credit union idle and let the consumers interpret the press, yes. If we go out with some strong marketing, no," he said. "We have to be proactive. If there’s ever a time, now’s the time. Include employee incentives, utilize the press, newsletter articles, promotions, direct mail. Just talk about it–don’t be quiet. I think it’s exciting times for credit unions. I think we can spin this to be positive if we don’t sit idle."

Keith Kauffeld, VP, operations, Air Academy FCU, in Colorado Springs, Colo., and member of the CUNA Operations Sales & Service Council, said he hasn’t heard of any credit units hiking up their rates before the CARDAct is implemented. As for CUs, he noted that some have sold their credit card portfolios, "and who they sold it to could be raising their rates."

Because CUs are not raising their rates the way many banks are, Kauffeld said, this presents an opportunity for credit unions to gain market share.

"I think an informed consumer may approach a credit union," he said. "Credit unions culd also take some of those credit card balances and put them into a fixed-rate consolidation loan."
Tyler Disburg, chief administrative officer for Montana First CU, in Missoula, Mt., and member of the CUNA Marketing & Business Development Council, said that while there may be a few CUs raising their rates right now as a business decision, he does not see this as CU movement shift.
But still, Disburg sees this as an opportunity for credit unions, who he said are not hiking their rates like banks.

"If it all plays out, it could actually help differentiation," he said. "I think it will be up to credit unions to say they will not be raising their fees because they wont have to. We didn’t use double-billing cycles. We didn’t have pay-by-phone fees. [Credit unions] have to communicate their strengths. They need to better tailor their message to do that." Sean McDonald.

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