Credit unions strive to be a trusted provider of financial services to their members and exceed the service levels set by most major banks. Because of this mission, credit unions continue to rank high in customer satisfaction on various product offerings. Credit unions were applauded in a recent Consumer Reports survey where 36,298 readers were questioned regarding the credit cards they used. The findings are positive for credit unions.
The card issuers that scored exceptionally well in our Ratings--USAA Federal Savings, the Navy Federal Credit Union, and a group of other credit unions--also charged median interest rates between 9 and 11%, compared with the 17% imposed by the two issuers at the bottom of the Ratings.“
The Regulatory Environment
The top credit card issuers are continually lauded for their credit card practices, whether it be from various consumer groups or Congress and other government regulators. Recently, the Office of the Comptroller of the Currency (OCC) has been vocal regarding this issue. Their stance is always watched closely as they regulate approximately 75% of the credit card market. While many practices, such as incredibly high late payment fees and confusing disclosures have been under scrutiny, the main issue has been interest rate hikes on existing cards without the consumers being notified.
One example of such a practice is where a consumer’s credit score may be affected by something not related to their relationship with the credit card issuer, such as a default on another loan or bill collection. Often times, the interest rate on the unrelated credit card will be adjusted upward without the consumer being notified.
"The practical reality is that the consumer would get stuck paying the higher rate on the full amount of his or her outstanding balance, because there would be no realistic alternative," John Dugan, Comptroller of the Currency stated. "He or she could very well complain that the rate increase was totally unexpected, and would undoubtedly believe that the higher rate was being applied 'unfairly' and 'retroactively' to balances the consumer accrued when the lower rate was in effect. In circumstances like these, I think the disgruntled consumer has a point.”
Credit Union Performance
Because of the above practices, credit unions have a distinct advantage in this market, and consumers are beginning to realize that. According to the Federal Reserve, revolving lines of credit (which the vast majority is credit card debt), increased at a 6.9% annual rate as of June. Over the same period, credit unions increased their credit card portfolios at a 12.2% rate, to total outstanding balances of $27.5 billion. This was the second highest category for growth in the loan portfolio, the first being member business lending.
Credit unions must be aware of these practices so they realize the advantage they have in this market and can advertise accordingly. If everyone who currently has a credit card with a non-credit union issuer was aware of the advantages of having that card with a credit union, the opportunities are endless for credit unions.