Sound Credit Union's Visa Change to Variable

Carl Roer, CLC Regulatory Comment Committee Member
October 19, 2009 | COMMENTS

Many aspects of the new Credit Card Act are scheduled to go into effect February 22, 2010. However, Congress is considering moving the date up to December 1, 2009, in an effort to prevent financial institutions from having sufficient time to make changes prior to the deadline. Key provisions of the Act include essentially eliminating overlimit fees (costing us $50K per year), requiring that payments be applied to highest-rate balances first, and preventing rate increases on existing balances for fixed rate programs. In addition to higher credit card loan losses, the credit card processer PSCU estimates that the provisions of the Credit Card Act will cost credit unions between 150 and 200 basis points.

Sound Credit Union determined that we needed to change to variable, and increase some fees, in order to maintain the viability of our credit card program. We surveyed our competitors to ascertain their rates and fees. We decided to change from risk-based-priced fixed rates, to risk-based-priced variable based on Prime subject to change monthly, with no floor or ceiling. We decided to price our Awards card 100 basis points higher than non-Awards, owing to the increasing cost of the points. We also increased the late fee, cash advance fee, foreign transaction fee, and Platinum Awards annual fee.

In the event that the deadline is moved up, we made December 1 our implementation date. We mailed out Change-in-Terms notices on October 13, so as to comply with the new 45-day Change-in-Terms notification requirements. Members were given the option to opt-out of the changes, in which case we are closing out their credit card account and allowing them to pay off their balance at the prevailing rate and terms.

We consulted with our attorney during the process. Implementation elements of this change included:

• Updated Visa Credit Card Agreement and Disclosure mailed with Change-in-Terms letters
• Updated Visa brochure
• Updated website
• Updated printed Visa statements
• Updated Visa welcome letter
• Updated Rate and Fee Addendum
• Updated loan application