By Bill Lehman,
Card Services for Credit Unions, Inc.
"What should we do with our credit card program?” has been one of the big questions for many credit unions during this time of economic uncertainty.
There are several different theories on the best course of action. Some possibilities have been fairly extreme, such as discontinuing all growth strategies, but these are not the best options for a credit union or its members. Below, I’ve broken down three of these theories and explained other possibilities that are in the better interest of a credit union dealing with a tough state and national economic situation.
Myth: In these economic conditions, credit unions should discontinue all portfolio growth strategies, including the basics of approving and issuing cards.
Reality: Credit unions should continue to approve and issue credit cards; however, they should adhere to the credit union’s strong underwriting principles. Credit unions should carefully review applications and appropriately assign limits and rates according to the potential cardholder’s credit worthiness. If a credit union is not providing risk-based pricing for its credit cards, now is the time to consider it. Credit unions need to make sure that where there’s a risk, there is a reward (rate). With the current conditions in the financial services industry, there is an excellent opportunity for credit unions to grow credit card portfolios. While banks are squeezing cardholders with lower limits, higher rates and higher fees, which can ultimately frustrate cardholders, credit unions have the opportunity to lure consumers away.
Myth: Credit unions should discontinue reviewing cardholders for the potential to increase credit limits (CLIPs) across the board.
Reality: Credit unions should proactively manage cardholders’ credit limits. Appropriately granting limit increases to qualified cardholders will help with account retention and portfolio growth. Credit unions should also be empowered to appropriately decrease limits when ultimately necessary, to protect the interest of the credit union. In essence, the best bet is to shift liability to lower-risk cardholders.
Myth: “Lay the hammer down” on all delinquent cardholders.
Reality: A more appropriate reaction is to implement a “collect by risk” mentality. By utilizing credit and bankruptcy prediction models, a credit union can tailor its collection efforts for those riskier cardholders. Consider tactics like early intervention; proactively adjusting credit lines; skip-a-pay; interest only payments; workout loans; and financial counseling.
Card Services for Credit Unions (CSCU) is a card-processing association dedicated to meeting credit unions’ unique needs. Just like credit unions, CSCU is a not-for-profit cooperative. A board of directors consisting of nine credit union presidents and CEOs governs CSCU, and members set its future direction. CSCU is the nation’s largest electronic payments association exclusively serving credit unions. CSCU works in partnership with Visa and MasterCard to make sure credit unions’ voices are heard.
Bill Lehman is the CU VP of Portfolio Consulting for Card Services for Credit Unions, Inc.