The Credit C.A.R.D. Act: Opportunities and Challenges for Credit Unions
Filene Research Institute, Research Brief No. 202, 11/09
24 Pages Posted: 4 Feb 2010 Last revised: 16 Apr 2010
This is a short research brief for the Filene Research Institute on the impact of the Credit C.A.R.D. Act on credit unions. The brief presents data on credit unions' credit card operations. Only around half of credit unions even issue credit cards, and for most that do, credit cards are a minor part of their loan portfolio. Consumers carrying credit union-issued cards, however, tend to carry higher balances than bank card users. The research brief shows that credit cards play a different role in most credit unions' business model than they do in the bank business model. For credit unions, card issuance is a loyalty device designed to encourage members to use other credit union financial products, rather than a profit center. Credit unions lack the economies of scale necessary to compete with bank-issued cards on rewards programs, fraud prevention, or underwriting technology. Instead, credit unions should focus efforts on simplicity, transparency, and service, while expanding collaborative efforts to improve efficiencies in card operations.
Because of the loyalty, rather than profit function of cards in the credit union business model, credit unions' primary concern with card issuance should be using it as a tool for building their depository base, rather than for extracting revenue from members. If credit unions play to their traditional strengths of service and simple, low pricing, they can expand their market share by picking up consumers who are aggrieved with bank credit card practices.
The Credit CARD Act presents an opportunity for credit unions in this regard, because it is less likely to upset their card issuance business than it is banks'. By hewing to a fair and simple product, credit unions will also be able to generate greater product differentiation from banks because banks are likely to respond to the Credit CARD Act with a new set of fees and billing procedures that alienate consumers. Regulatory reform is as much an opportunity as it is a challenge for credit unions.
Keywords: credit cards, credit unions, credit C.A.R.D. Act, economies of scale
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