CARD Act May Be Hitting Banks Harder, But CUs Can't Be Complacent

In Credit Union Journal's Sept. 20th issue, an article was published on how the CARD Act is expected to hurt banks more than credit unions. In many ways that is true, particularly as related to constraints on penalty fees as mentioned in the article. However, we should not take that as a reason to be complacent. CARD Act imposes serious and sometimes difficult burdens on credit unions too, in some cases burdening them more than banks. In particular:

• CARD Act forces bank issuers to act more like credit union issuers: fees are lower, rate increases are more difficult to implement and other unsavory practices have been eliminated. As a result credit unions will be more challenged to effectively explain and market the differences between their cards and competing bank products.

• Compliance costs increased for everyone, but due to their large size banks can spread those costs over larger numbers of accounts. Credit union compliance costs, unfortunately, are spread over smaller portfolios and are disproportionately burdensome. Some of these costs were one-time events and are behind us. But others, such as the repriced account monitoring requirements, will increase expenses permanently.

• Similarly, the amount of detailed analysis and portfolio 'fine tuning' required to keep a portfolio healthy has escalated dramatically. Repricing a portfolio is now a three-to-four year effort so waiting until a problem surfaces to work on your program leads to many years of headaches (and maybe operating losses as well).

• Mergers are trickier as a result of CARD Act. Though the specifics are too detailed to go into here, any credit union merging in another credit union's credit card program has new due diligence and post-merger requirements. Though many are not yet including this in their pre-merger analysis and financial forecasting there can be serious negative outcomes that surprise the "surviving" credit union later.

This is not to say that credit unions cannot make great progress in regaining member card relationships. They can. The credit union advantages of stronger credit quality performance, lower funding costs, and not being forced to maximize profits for shareholders are a powerful combination. With a proper strategy and commitment of the required resources nearly any credit union can have a card program that works on all levels. But let's not let the banks' struggles obscure the fact that credit unions need a plan too.

Timothy R. Kolk, President
TRK Advisors, Peterborough, N.H.