WALNUT CREEK, Calif.-With many issuers raising APRs and fees on credit cards in advance of federal legislation, one large CU here is changing its entire card program and slashing rates for about 80% of its cardholders.
Pacific Service CU's overhauled card pricing includes no fees for cash advances, balance transfers, carrying a zero balance or paying balances in full each month. The $1-billion institution is also creating three new APR "buckets" for cardholders ranging from 8.9% to 13.9% based on credit scores.
"In the earlier product we still had very few fees, and those we had were low. With the credit card act that is going through, what's happening in the marketplace is that the banks are charging for everything they can think of," said VP of Corporate Development Noelle Fischer-Herbert. "With the folks who are in the top tier (13.9%), we are going to automatically review their credit every six months, and as their credit improves we are going to automatically move them to lower rates."
The new program was crafted based on input from focus groups that helped to put together the CU's new checking program earlier in 2009 and which also showed members did not like hidden charges and fees.
Annual reviews of the entire portfolio could also benefit members slotted into the 10.9% tier, which was the standard rate for all members prior to the re-design, as they will be given a chance to move to the 8.9% if they sufficiently improved their credit over the previous year. A small percentage of members with less than stellar credit will see their rates actually rise to the top bucket, though the vast majority will see a reduction and another small number will see no changes.
With the major APR reductions resulting in a potentially smaller fee income revenue stream, Fischer-Herbert noted that the CU is looking to keep the books steady by adding $12-15 million in new balances, thanks to the attractive rates and fee-free balance transfers. The rate cuts are also expected to result in more transactions, which would bring Pacific Service CU additional interchange income.
"Our goal is to offer a product that simply breaks even and contributes to overhead," said Fischer-Herbert.
