WASHINGTON -
During testimony before the House Financial Services Subcommittee on Financial Institutions, Johnson noted that the rising interest rate environment, which has pushed up the cost of funds (dividend rates) for credit unions, has cut the net interest margin earned on all types of loans. "Rising variable costs and fixed interest margin potential may have persuaded many federally insured credit unions to sell or discontinue their credit card programs in recent years," said Johnson, who was testifying on proposed changes to the Federal Reserve's Reg Z, credit card disclosures.
Last week's hearings was one of a series being held by Congress exploring a variety of issues concerning credit cards, including the lending practices of issuers, predatory lending, interchange fees and consumer disclosures. Some of the hearings are expected to result in legislation later on.
Data collected by NCUA from credit card brokers shows that 318 credit unions have sold their card portfolios totaling $2.2 billion in receivables over the past five years. As a result, the number of credit unions issuing credit cards has declined by 13% since 2002, said the federal regulator.
Credit unions continue to have a small share of the credit card market, according to the NCUA Chairman. At the end of the first quarter, 50% of credit unions offered credit cards, with those credit unions representing just $25.7 billion, or 3%, of the $775 billion outstanding credit card debt in the U.S. And just 6% of the $411 billion of credit card debt at federally insured depositories.
Credit card loan growth among credit unions has been slow in recent years, averaging just 4.3% over the last five years.
At the end of the first quarter, the average of the most common credit card interest rate for credit unions was 11.38%, with 9.9% the most frequent rate charged. Those averages are lower than the national average for standard and "gold" credit cards and variable rate "platinum" cards.
Johnson said NCUA supports efforts by the Fed to amend Reg Z to expand consumer disclosures and make them more user-friendly, but she gave no specific recommendations.
She did tell lawmakers that, though it has the authority to preempt state laws when it comes to the operations of federally chartered credit unions, the federal regulator is circumspect in doing so-a major controversy in the banking arena, where nationally chartered banks continue to seek shelter from state consumer laws under federal preemption.
NCUA's long-standing position is that the Federal CU Act establishes express preemption of state law in the area of lending, as far as rates, terms and conditions, explained Johnson to the committee. The main reason is uniformity for those credit unions operating in numerous jurisdictions. But NCUA's lending regulation specifically states that the federal regulator does not preempt certain areas of state law, like insurance laws, laws relating to security interests in property, or on collection costs and attorney fees. NCUA does not preempt state laws that require consumer lending documents be in "plain language," Johnson explained.
The credit union regulator appeared with a broad variety of industry, consumer and regulatory representatives at last week's hearing. Among them were representatives from the Fed, FDIC, Comptroller of the Currency, Office of Thrift Supervision and Conference of State Banking Supervisors, as well as from credit card bank Capitol One; Citigroup, Bank of America; U.S. Public Interest Group and the credit union-backed Center for Responsible Lending.
