How to Grow in the Post-CARD Act Era

Mark Fenner
November 24, 2010 | COMMENTS

As the final rules implementing the Credit CARD Act of 2009 became effective August 22, the landscape of the credit card market will be changing again. Yet despite the fears of many that small issuers wouldn’t survive, credit union card programs are thriving.

According to Callahan’s, credit union card portfolio balances grew to $34.3 million dollars in the first quarter of 2010, a 7.5 percent increase from the previous year. In comparison, card balances nationally decreased by .5 percent last year. Much of the difference can be directly related to growing consumer dissatisfaction with their card products and the great media coverage credit unions have garnered in the last year.

Consumer sensitivity about card products remains high according to recent industry information. In a recent survey, 50 percent of the consumers that responded indicate they will stop using at least some of their cards over annual fees, increased APRs, and reduced credit lines.

So how can credit unions continue to grow in the new environment? Card portfolio growth strategies aren’t that different from pre-CARD Act days. The fundamentals of program yield and performance are still driven by three key factors; penetration into the membership base, strong utilization, and solid risk management practices. Credit unions should continue to follow the same basic strategies they have used to garner the recent growth we have seen, including:

• Acquire and activate new accounts. Increase visibility of your card product in branches, online and in credit union publications to build member awareness. Educate staff about the competitive benefits of your cards, and establish goals and incentives to encourage cross-selling your card products. Balance in-branch and online marketing efforts with direct mail, segmenting and targeting qualified members with specific promotions, such as a low interest balance transfer attractive to new cardholders.


• Drive usage. Ongoing card usage is key to portfolio growth, profitability, and member loyalty. If your card is top-of-wallet, members are less likely to switch to a competing card. Regularly evaluate credit lines to help ensure your lowest risk cardholders have access to adequate credit. Encourage usage by offering special rate promotions and even balance transfers. Since credit unions typically charge lower balance transfer fees than the large national issuers, cardholders are often responsive to offers to move their credit card balances. Rewarding low risk cardholders with low rates and no-fee loyalty programs can also drive usage.


• Strengthen risk management practices. The CARD Act is driving issuers to do a better job managing risk, so credit unions must strengthen risk practices and controls with more sophisticated analysis tools and scoring models. The right tools can help credit unions better evaluate individual and overall portfolio risk and assist in meeting new requirements of the CARD Act such as considering a consumer’s ability to pay when determining credit lines. Enhanced collections practices that include earlier, more frequent contact when accounts are delinquent can also help minimize risk and improve the member experience.

Although the CARD Act restricts pricing changes on existing balances, variable rates can apply to new purchases with proper notice. Consider pricing the card portfolio to protect it from a rising cost of funds through variable rate pricing. Variable rate pricing can also apply to new accounts and should be considered as part of a credit union’s card acquisition strategy.

Credit union card products are positioned better than ever to deliver a competitive advantage in the marketplace. Even in this post-CARD Act era, credit cards remain one of the highest performing assets in the portfolio and a key to new member relationships.

Reprinted with permission from the Texas Credit Union League (www.tcul.coop).