ARLINGTON, Va. - Can credit unions maintain and exploit an apparently growing difference between their own card programs and those of other issuers? While consumers have long been familiar with the notion that credit unions' customer service for cardholders exceeds that provided by other card issuers, relatively few may yet have discovered that, on average, credit unions' card grace periods are significantly longer as well. Among card issuers overall grace periods, the time between when a cardholder makes a purchase with a credit card and the time they must start paying interest on the loan, have been shrinking. According to cardweb.com, a site on the Internet that tracks card trends, the average credit card grace period has fallen from 29.7 days in 1990 to 20.6 days in 2003 as banks and other card issuers have sought to shore up their card account revenue. Not so with credit unions. By contrast, credit union card grace periods average 25 days, an interval which they seem inclined to hold. This gap could offer credit union card marketers yet another way they could help make sure their members understand how their cards differ from those of other issuers. "We definitely tell our members who attend our seminars that grace periods can be one of the things they can point to if a member brings in a very low interest card offer and wants to know why they shouldn't switch," said Sue Chrzan, communications specialist with Card Services for Credit Unions. CSCU is the association of credit unions, headquartered in Clearwater, Florida, that process their credit card transactions with Certegy. Chrzan explained that grace periods are among the array of things, such as late and over limit fees, to which cardholders might not pay adequate attention if they evaluate cards solely on the basis of annual percentage rate. "This is part of the overall credit card package from credit unions that is significantly different and better for the cardholder," she added. Pressures On The Grace Period? "The grace period between 1990 and 2003 have changed because the overall card market has sharply changed," explained Chris Theoharides, president of Advantage Consulting Group, a card consultancy firm headquartered in Massapequa, New York, that specializes in helping groups seeking to issue cards find a card issuing partner. "As pressures have mounted on card programs bottom lines, card issuers have had to take steps to try to build profitability into their programs," he explained. "Some of these include what are called the nuisance fees, the late fees and over limit fees and some include the shorter grace period." Even though it would seem that card programs should remain very profitable (the average annual percentage rate nationwide is still 14.71%, according to cardweb.com), there are still downward pressures on profitability, Theoharides contended. The two biggest culprits are the very low interest introductory card offers which often set their APRs at 0.00% for between three and six months and card rewards program that many cardholders demand but which also help undercut card program profitability, he added. Other culprits include rising loan losses and bankruptcies, as well as the loss of annual fee income and the practice of some card holders of switching from card to card to keep their rates low. The latter in particular hikes marketing costs and mean the card issuer never sees a revenue stream from that card account. "It's really a way to try to build more income into their card programs," Theoharides said. "It's that simple." But don't credit union card programs face the same pressures? How long can they keep their grace periods at the possibly generous average of 25 days? Probably a long time, Chrzan said. She pointed out that because well marketed and maintained credit union card programs generally have high rates of cardholder satisfaction, they generally don't need the very low interest rates offers that have helped bring pressure to other card issuers. That same loyalty tends to mean that credit union cardholders are likely to stick around to carry balances on their cards that will generate income from their finance charges. "We have data now from the Raddon surveys that show that credit union cardholders are among the most loyal credit union members and those most likely to have other credit union products," Chrzan observed. She also made the point that credit unions shouldn't necessarily assume that their entire membership of card holders want a rewards program that would cut into their card program profitability. "A credit union should definitely know their membership and get a feel for whether members want a rewards program or would be a happier with a low rate card from an institution they can trust with great customer service," Chrzan added. -

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