The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 required complex changes to credit card programs. The final stages of compliance went into effect in August. Credit unions explain how members and staff are adjusting.
Some complexities of the CARD Act have confused both members and staff at $408 million asset Finance Center Federal Credit Union, Indianapolis. “The changes are so vast—affecting statements, disclosures, fees, and the ability to change account terms,” notes Kevin Ryan, president/CEO. “We took a proactive approach by trying to educate staff and members before the legislation’s enactment.”
The credit union sent members a letter outlining the act’s major changes and announcing an educational seminar. Internal training covered the same topics, says Charlton Browning, credit card portfolio manager.
“We posted the presentation on our website, along with a sample statement highlighting the changes,” he says. “We also posted information on our blogs and Twitter feeds.
“We’re continuing to monitor the regulatory environment, and as developments arise with the act, we’ll address them through further education.”
Browning prepared himself by reading the entire 1,155-page ruling and asking other credit union personnel to do so. “We’ve also worked with our card processor, which has been very good at providing updates on system changes required to comply with the act,” he says. The credit union also reviews Federal Reserve press releases and the National Association of Federal Credit Union’s compliance blog.
Despite the act’s revenue impact on credit unions, Ryan thinks most changes benefit consumers. “It’s been a hard road getting through the compliance, but in the end it will benefit members and the industry as a whole,” he says. “It levels the playing field, making card terms more consistent. And it’s easier for consumers to do apples-to-apples comparisons.”
Credit unions are in a particularly good position, he says. “With the way some big banks have restructured their portfolios, it gives credit unions a good chance to attract some of their customers.”
Gary Hinrichs, president/CEO of $123 million asset West Community Credit Union, O’Fallon, Mo., believes consumers didn’t notice most impacts of the CARD Act. “We haven’t seen or heard much angst from members, but from our end it’s been a monster,” he says. “It restricts the way we can put programs together.”
West Community’s on-campus branch at the University of Missouri-Columbia has had extra challenges. “Every year we open accounts for incoming freshmen, but now anyone under age 21 needs proof of income that would enable them to support themselves independently, or a co-signer is required. It’s confusing for students and parents,” Hinrichs says.
West Community notified members in advance. “We didn’t want them to be caught off guard, so we sent statement inserts and posted information on our website about changes they could anticipate,” he says. “We also trained staff so they could answer inquiries, but we didn’t receive many.”
The act necessitated changes to West Community’s account and fee structure. The credit union sent members multiple new disclosures, which Hinrichs thinks few people read. “We had to change our print marketing materials and our website, too,” he says. “Though our processor made the required statement changes, we spent hours ensuring our materials and disclosures were in compliance with the legislation’s intricacies.”
Because of haste to enact new consumer legislation, the law wasn’t as well-developed as it could be, he says. Last-minute changes required the credit union to undo and restructure interest-rate changes. “We had created new materials and were ready to communicate the changes, and we had to modify them again.”
The credit union’s card processor provides timely communication about the legislation, and Hinrichs and his staff review the Credit Union National Association’s and other organizations’ communications to keep up.
“There’s always an educational component when things change,” he says, adding that it’s often six to 12 months before things settle down. “People don’t notice changes right away. They notice them months down the road and ask questions. After that, it’s just the way we do business.”
Michigan First Credit Union, Lathrup Village, didn’t post information on its website or send special notifications to members about CARD Act changes.
“We just sent the normal disclosures,” says Michael Poulos, president/CEO of the $560 million asset credit union. “Our members have high confidence and trust levels with us, and we give them the information they need to know and tell them why changes are being made.”
The act created minimal confusion. “We received a few calls around the first of the year when we notified members we were switching to variable-rate cards,” Poulos recalls. “Some members didn’t want the variable rate, but when we explained that their rate wouldn’t change, and that we were switching because government regulations made it too expensive to continue offering fixed-rate cards, they were fine.”
Michigan First also eliminated over-limit fees and members’ ability to exceed their limits, because of the act’s opt-in requirement. “That didn’t generate many member comments,” says Poulos. “And one of the few nice things about the CARD Act is that statements are a little cleaner in terms of informing members how long it will take to pay off their balances. But members didn’t comment on it.”
The restrictions on issuing cards to members under age 21 have also caused consternation for Michigan First. “The number of cards we’re issuing to young people has declined significantly,” he notes. “The law creates significant inconsistencies. For example, we could give a 20-year-old a car loan or an unsecured loan without proof of income, but not a credit card. That doesn’t make sense.
“We recognize [lawmakers] were trying to stop certain issuers from bombarding young people with card offers, but the law’s solution is like trying to shoot a mosquito with a shotgun.”
It’s almost a full-time job keeping up with legislative changes, he says. “But our processor keeps us regularly updated and the Michigan League also does a good job, as does our law firm. Between the three, they keep us on track.”
Ultimately, Poulos thinks the act will mean higher rates and fees and fewer card rewards programs. “We live in tough economic times and card losses are much higher across the board; they have to be made up somewhere. We’re already seeing new rates and fees in the marketplace, although we haven’t implemented any here yet.”