CARD Act Expected To Hurt Banks More Than CUs, Experts Suggest

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BIRMINGHAM, Ala.-A requirement of the CARD Act that went into effect Aug. 22 has yet to have a significant impact on CU revenue, but looks to reach more deeply into the pockets of banks, sources predict.

By Aug. 22 financials had to put in place the new Fed over-the-limit and late fees-$25 maximum and no fee can exceed the amount of the violation. According to analysts, banks are likely struggling with the new rule.

"The bigger impact will be felt by banks," noted Bill Hardekopf, CEO of LowCards.com. "Credit unions have slightly lower fees and some banks have been charging late fees as high as $39. Banks will have to make up this revenue elsewhere."

Credit unions are not expecting to feel the same pinch, but it is too soon to be sure, according to Steve Salzer, PSCU Financial Services group executive. "I'd say the Fed's new fee limits, as far as credit unions are concerned, are middle of the road. Banks are typically higher than $25."

Salzer said the St. Petersburg, Fla.-based PSCU was afraid the Fed might be overly aggressive and set fees even lower, given the pro-consumer sentiment in Washington. "We were afraid they would go down to $20, which might have been scary for credit unions," Salzer said.

Salzer predicted that as time passes, credit unions will feel some effects from not being able to charge a fee greater than the violation.

There are also some minor statement formatting requirements from the CARD Act that kicked in Aug. 22, for which Salzer believes credit unions were well prepared. "Credit unions have had to make minor changes to cardholders' statements, but knew about that well in advance of the deadline and all were in good shape last month."

Aug. 22 also marked the CARD Act requirement that states credit card accounts repriced due to risk or market condition issues have to be reviewed every six months to determine if those conditions have been corrected, and if so the cardholder's rate must be rolled back. That will require credit unions to flag those accounts for review every half year.

Salzer said PSCU interprets this rule as stating financials must conduct the first review of repriced cards six months after Aug. 22. "So February 2011," concluded Salzer. "There are some operational matters that must be addressed, and credit unions are still working on those."

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