Credit unions do not have to comply with new guidance requiring an increase in the minimum payment formula for credit cards, but that doesn't mean they won't feel the impact of it, according to several experts.
Guidance issued by nearly every federal financial regulator except for NCUA calls for credit card issuers to revamp the formulas they use to set the minimum payment in order to ensure consumers are able to pay off the card in a "reasonable" time frame.
NCUA chose not to join its counterparts in issuing the guidance because it doesn't believe CUs have been setting their members up for negative amortization (see related story, page 17), but that doesn't mean credit unions don't need to be concerned about this guidance.
Credit unions who have sold their portfolios or who use third-party providers to issue the cards, for example, could feel a direct effect of the new guidance.
"For those credit unions that have sold their portfolios to MBNA or others who must comply with the guidance could potentially see some reputation risk," said CUNA Assistant General Counsel Mike McLain. "Their members who have these credit cards often still associate the cards with the credit union."
But the number of consumers who will be impacted by the guidance is relatively small, if TNB Card Services' card portfolios are any indication.
"We did an analysis to see who are making minimum payments each month," said TNB Card Services' Glen Lee. "Only about 8% are making minimum payments. For us, there should be minimal portfolio impact."
While the vast majority of TNB's credit union clients issue their own cards, the vendor handles issuing for about 80 credit unions, so the minimum payments on those 80 CUs' cards will increase.
"We're only about one-and-a-half cycles into the new formula, so it's too early too tell what the impact will be," Lee offered. "In the case of someone with a credit card that has $5,000 outstanding, the minimum payment before the change would have been $100. After the change, that payment would be $150."
That may seem like a minimal change, but what about those consumers who have several cards maxed out on which they are paying minimums? "Even though credit unions don't have to comply with this guidance, they shouldn't assume that their card is the only card their members hold," Lee noted. "We have created a Minimum Payment Assistance program for cardholders who have any difficulty stemming from these changes."
McLain said the fact that members often do have multiple cards from multiple issuers is an important point for CUs to keep in mind.
"Credit unions do tend to monitor their members' financial situations over time, and many offer financial counseling of some sort," he observed. "So, if a credit union sees a member getting into trouble, they should step in to try to help them out. The good news for consumers is that credit union usually don't raise rates when they see a member having trouble on other accounts the way banks often do. Instead, they'll look to see how they can help."
