Less Home Equity Loans
By Joyce Moed, Reporter

BOSTON–With less home equity loans being written, consumers are spending with plastic instead of cash, allowing credit unions to grow their card portfolios while helping their members avoid some of the sharks lurking in the credit card waters.

Economists and financial leaders agree that during this time when many high-fee low-credit predatory credit cards are preying on those most vulnerable, credit unions are the exception.
The National Consumer Law Center warned consumers earlier this month that many financial institutions are quietly collecting millions of dollars in profits by selling predatory credit cards targeting vulnerable consumers–particularly those with bad credit.

The Center’s report “Fee-Harvesters: Low-Credit, High-Cost Cards Bleed Consumers,” said that credit card companies are taking millions of dollars in fees and other revenue from consumers in the subprime market. For example: one credit card featured in the report comes with a credit limit of $250.But when the consumer accepts the card, they automatically incur a $95 program fee, a $29 account set-up fee, a $6 monthly participation fee, and a $48 annual fee – an instant debt of $178 and a credit line now of only $72.

Another example is the new “decoupled” MasterCard from Capital One, which Credit Services for Credit Unions in Clearwater, Fla. says can threaten a CU’s revenue. This new card can be linked to any checking account and used for purchases and ATM withdrawals, just like CU debit cards.
Robert Hackney, president of Card Services for Credit Unions in Clearwater, Fla., says that although this is a huge issue for CUs, it also brings opportunity.

“It’s also a great opportunity for credit unions to educate their members on the benefits of having debit and credit cards with their credit union. These benefits typically include lower APRs and fees than the big bank issuers.”

Jay Kurian, first senior vice president for TNB Card Services in Dallas, agrees that credit unions are an exception, and are doing a good job monitoring credit-card performance right now.
“Credit unions really originate most of their loans through SEG networks,” he said. “And they have a very tight credit process. They use scores in underwriting.”

“Credit unions really get to know their members well,” Kurian continued. “They get a good snapshot or view of their members. They know the population well. They also do a good job on collections.”

TNB, which processes cards all over the country, sees people making some adjustments “here and there,” Kurian said.

“They’re staying within the market,” he said, “not to people they don’t know. That helps them.”
When it comes to consumer lending, credit cards are most dominant right now, says one economist.

“The first nine months of this year, credit cards rose at least 15.7%,” said Steve Rick, senior economist for CUNA in Madison, Wis. “New autos grew just 1%.”

The reason?

“Less home equity loans are being written,” Rick said. “So more people are switching to credit cards.”

However, with more credit card use also comes more credit-card delinquencies, Rick said.
“Last September we saw .68% delinquent. This year we are seeing .77%,” he said. “The numbers have moved up, but in incredibly low levels. Of course, the trend is moving into the higher direction.”

Credit card pricing has also gone up slightly in the past year, Rick said. Last year, for the regular classic credit card, credit unions charged 12.15%; this year it’s about 12.25% he said.
Dr. Tun Wai, chief economist and director of research for NAFCU in Arlington. Va., says he sees a “real growth in credit cards.”

“Part of it is because real estate is in such turmoil and people don’t have home equity so people are paying their bills with credit cards,” he said.

But Wai said this doesn’t come as a surprise to him, as he anticipated people to use credit cards as substitution.

“Consumers are still spending,” he said, “and now they’re using plastic.”

Wai said that he doesn’t see credit unions changing their standard much when it comes to credit cards.

“They’re still doing what they’re doing,” he said.

Tom Chandler, director of strategic portfolio planning for PSCU Financial Services in St. Petersburg, Fla.. agrees.

“I don’t see a big shift in the pricing model,” he said. “Many credit unions are still comfortable going out with a competitive fixed rate.”

Chandler said that 90% to 95% of credit unions are still doing judgmental underwriting.

“It’s not a fundamental shift in underwriting,” he said. “You can say maybe they’re going to be a little hesitant. Credit unions really haven’t let go of the credit side of their business. A lot of their card growth is organic, and through their branches. Credit unions have that benefit–they know their members, and their members know their credit union.”

www.tnbcard.com
www.nafcu.org
www.cuna.org
www.nclc.org
www.pscufs.com