The
Chis Joy, principal with PSCU's Advisors Plus credit card consulting team, noted that many credit unions have "grown accustomed to notably high" interest rate margins — often as high as double digits — as a by-product of the Fed's policy of holding its target fed funds rate at record lows over the past eight years.
Now, on the eve of 2017, as analysts are expecting an additional three to four rate increases next year, Joy warns that the rising rate environment should "rekindle questions" surrounding credit card portfolios that carry non-variable or fixed APRs.
"As eight years of declining or stable funding costs shift toward a rising rate environment, credit union regulators, boards of directors and senior management alike will be seeking information regarding the impacts of rising funding costs on margins and profitability," Joy said.
Those assertions are part of a new white paper from PSCU titled "Rekindling Questions on Non-Variable/Fixed Credit Card APRs in a Rising Rate Environment."
Joy further cautioned that credit unions cannot do as much as they once could to mitigate the impact of these declining margins given the restrictions of the 2009 CARD Act. Since issuers no longer have the regulatory latitude to change APRs at any time and for any reason, credit card portfolio managers "must be particularly attuned" to events in the marketplace and trends within their portfolios, he said.
Joy and other PSCU credit card experts suggest credit unions begin to "stress test" their 2017 budgets to address "possible reductions in interest margins and profitability over a likely range of scenarios." Thus, after credit unions have quantified those possible impacts, they will have the information they need to "communicate to key stakeholders proactively to avoid surprises and develop plans to minimize risks."
