Auto loans aren't the only credit union product that is being affected by special 0%, no-money-down deals: credit cards may be feeling the pinch, too.
"There are some very attractive 0% balance transfers out there right now, and consumers are using those to pay down debit, including some of their credit union credit card debt," said K. Glen Lee, senior vice president of sales and marketing at TNB Card Services. "The retail environment in general has given us some fall in numbers overall."
In response to some of these changes, TNB rolled out an additional balance transfer promotion for its credit union clients on top of the existing balance transfer promo traditionally run after the holiday spending season.
"We also notched our rates (in those promotions) down," said Jan Dailey, TNB's VP-marketing. "The additional promotion in the fall was very successful. This January we did offer 0% and 1.9% on balance transfers for the first time. Credit unions were given several different rates to choose from. Of the credit unions who participated in the program, about 40% took the lower rates."
The decision to add another balance transfer promotion and to nudge the rates down was in response to credit unions concerned over meeting or even beating some of the competing offers, Lee added.
The competition from a variety of retailers and other issuers isn't necessarily translating into lower volume on CU's credit cards because, in many cases, a member will transfer the balance on one card to a new card and then will go right back to using that card and building a balance on the old card, Lee explained. Instead, it's an issue of member retention.
"It's always been true-it's easier to retain an existing customer than it is to gain a new one," he noted.
And it's also always been true that the credit unions that don't work their credit card portfolios likely will be disappointed by their performance, according to Rex Johnson, the former Baxter CU CEO who went on to found Lending Solutions, Inc. and the University of Lending.
"The ones seeing volume drop are the ones that have done nothing to enhance their cards," Johnson suggested. "They have the standard card with an average rate at, say, 12%, and they're seeing little or no growth and they're losing balances."
TNB's Dailey agreed. "We saw a real big jump (in the number of credit unions participating in some of the various marketing and promotional programs TNB offers its clients)," she said. "Credit unions are getting the message that they need to work the portfolio to grow it."
Just as with the 0% financing being offered on auto loans (see story, page 1), the key is education of the membership.
"Members need to be careful with those 0% cards. They're usually 0% as long as they're current, and the minute you're a day late, they jack it up to 21% overnight," he related. "A board member was telling me she had gotten one of these credit cards with a limit of $20,000 at 0% for six months. She took the card, got the entire $20,000 as a cash advance and then invested it in a CD at 3.5%. She was crowing about what a great investment it was to borrow the money at 0% and then earn 3.5% on it in the CD. But she wasn't thinking long term. She's just maxed out a credit card, and because she was very conservative and didn't have many cards or loans, she just used up a majority of her capacity, and she probably drove her credit score down 80 points, so now, if she needs a loan for anything else during the next six months, she's going to pay a substantially higher rate. We have to educate members about what they're doing to their credit scores."
Some observers have suggested that the more common these 0%, no-money-down deals become, the more consumers will come to expect super-low rates, and the more they will shop around for the lowest rates they can find, even once interest rates start bucking back up. But TNB's Lee suggested that assumes that consumers don't understand-or don't care-about what's going on with the economy.
Keep The Card
"I think the consumer understands we're in a window of low loan rates right now," he advised. "I think they understand that it's a temporary situation that will eventually flex back."
In the meantime, special introductory rates continue to be a good tool for acquiring new cardholders, and it's also a powerful retention tool, as well. "Consumers would rather keep the card they have if they have the opportunity to save more," Lee observed. "They will choose convenience as long as it doesn't cost too much."