Possible Change in Credit Card Regulations Unlikely to Impact Credit Unions

ARLINGTON, Va. – The Federal Reserve (Fed) is contemplating changing the nation’s credit card regulations, but the possible change is unlikely to have much of an impact on credit unions’ card operations, according to credit union card experts. The Fed has proposed a change in the regulations that govern how many credit cards a financial institution can issue to one account holder. Under the current regulations, the so-called “one for one rule,” financial institutions are only allowed to issue new cards to replace an old one. If a credit card account holder loses or destroys their credit card, they may ask that the financial institution provide them with another one to replace it. But the regulations do not allow the financial institution to offer, or just send, account holders multiple new cards that, in theory, the account holder could keep in other places for use at other times. As a subsection of its recent proposal on changes to Regulation Z, the Fed proposed allowing financial institutions to issue multiple cards to the same account holders, thus possibly sharply expanding the number of cards in circulation and facilitating greater experimentation with the new, different shaped cards designed to fit on key chains and in other unlikely places. Currently, only Bank of America and Discover have versions of their cards out in the new shapes and sizes. The comment period for the new proposal is expected to close in March, unless it is extended, and the new rules would go into effect for financial institutions in October, according to the Fed. Credit union card issuers would be covered by the regulations because credit cards are one area of financial services where the NCUA is the rule enforcer but not the rule maker, according to Cliff Northup, NCUA director of public and congressional affairs. “We would probably issue credit unions a letter or something if this regulatory change passed, but we would not have to draw up a new regulation to permit credit unions to issue multiple cards to card holders,” Northup said. Not a fit for CUs? But just because the regulations would allow credit unions to issue multiple cards, or cards in new designer shapes, it is not clear if any would actually do so, according to officials with different credit union card associations. “I think there are a lot of credit unions waiting to see what will happen with the new cards,” said Robert Hackney, president of the Clearwater, Florida based Card Services for Credit Unions. “If the new card designs begin to really drive consumer card choices then you might see larger credit unions begin to deploy them.” But both Hackney and Sue Chrzan, CSCU communications specialist expressed doubt about the number of credit union members, or consumers overall, who would necessarily go for the new designs. “The last place I would want my credit card is on my key chain,” Hackney noted, and Chrzan agreed, noting that she already “refuses” to put anything on her key chain but her keys. “I mean it seems really dumb to have a situation where you can lose both your keys and your credit card if you ever lost your key chain,” she said. Katy Slater, manager of product management for the St. Petersburg based PSCU Financial Services cited acceptability issues, but honed in on the increased cost of the new cards with the different designs. “We don’t even offer them to any of the credit unions that process with us,” Slater said. According to Slater, the costs of the new machinery and technology to handle the new card shape and design mean that the new cards face an increased cost of between 60 and 600%. She also noted that Bank of America and Discover have both decided to manufacturer their cards in house to keep costs lower. There would likely also be increased loss and fraud costs from a card that was out in open view as much as a one that was on a key chain, she noted. Still, if the cards proved acceptable to consumers, issuing more of them could have a real appeal in a card market that is notoriously tight and where the fight for which credit card will be “at the top of the wallet” is often a pitched battle, the experts agreed. It remains to be seen what form the Fed’s changed regulation will actually take, according to media reports. Consumer groups confirm that they have traditionally opposed the issuance of multiple cards because of the possible impact they could have on consumer credit card debt which is already spiraling. Both the Consumer Federation of America and the U.S. Public Interest Research Group said they expected to study the card proposal and to push for guidelines for new cards that might be issued under the changed rules. [email protected]