The Big Opportunity From The CARD Act

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FT. LAUDERDALE, Fla.-The pending CARD Act is a nuisance, acknowledges one analyst. But it's also something else: "An opportunity for credit unions to drive a truck through."

That's according to CUNA's chief economist, Bill Hampel, who noted that while credit unions might be focused on the "headache" related to "initial confirmation with credit cards and open-end agreements," sight should not be lost of the fact banks are dealing with the same laws and will react in ways that present a competitive opportunity.

"Credit unions are not in the business of jacking up APRs, but you do want protection, which is why many are going to variable rate cards," said Hampel in remarks before CSCU's "Blink" Conference. But the point is not to threaten the basic business model of credit union loans."

Hampel pointed out credit cards have long been "highly profitable" for banks, thanks to what one Filene report called "contingent pricing," but which he refers to as "bait and switch."

"For credit unions it may mean that annual fees are coming back as low level triggers to higher costs," said Hampel.

With the CARD Act compliance date approaching, Hampel said banks have three choices (including a combination):

1. Accept decline in profitability.

2. Raise front-end pricing with annual fees and APR.

3. Find new tricks. "It's hard to underestimate the inventiveness of the bankers. The CARD Act addresses only current tricks of the trade."

For CUs, the opportunity is in what has long been seen as a competitive weakness: so called "plain vanilla" pricing. A card that is fairly priced and easy to understand will find favor with consumers, said Hampel.

"The simple implication is that credit cards will take on a much more significant role than in the past," Hampel said. And the trend toward greater card marketshare may already be underway. Hampel pointed to data showing that in March 2009, credit unions had 5.6% share of card outstandings. By December 2009, that figure had risen to 6.1%.

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