ARLINGTON, Va. – Now that the Federal Reserve has hiked the prime rate, how long will it take for MBNA, a leading purchaser of credit union card portfolios, to change the rates on its credit union cards from fixed to variable rates? According to card analyst reports from the stock brokerage Merrill Lynch, 90% of the Delaware-based card giant's card accounts had fixed interest rates as of the end of 2003. The Wall Street Journal and other financial media have reported that the company has begun to notify some of its cardholders that their fixed rate cards are about to become variable rate cards, often at higher rates. MBNA has agent card issuing relationships with roughly 75 credit unions across the country, according to Steven Fuld, senior vice president with Kessler Financial Services, a card portfolio evaluation firm that has facilitated almost all of MBNA's credit union card portfolio purchases. John Zavoyna, executive vice president with MBNA, confirmed that the company would probably change new credit union partner accounts to variable rates as part of the purchasing process, but he did not know what the company was doing about the card accounts from credit unions that are already issuing partners. MBNA spokesman James Donahue has declined to return phone calls for comment about the rate question as of press time. Robert Hackney, president of Card Services for Credit Unions, the association of credit unions that process their card transactions with Certegy, noted that this is one of the risks credit unions take when they sell their card portfolios to other issuers. "Here they have a credit card product with their name on it," Hackney said. "But key decisions like pricing are being made somewhere else. Unless they have negotiated some sort of pricing structure into the purchase they have no control over what happens with that card." TNB Card Services, the card management arm of credit union-owned Town North Bank and Atlanta-based InfiCorp both purchase credit unions' card portfolios and both said that they switch fixed-rate cards over to variable rates when they re-price a portfolio after purchasing it. "For most cardholders, our variable rate pricing is going to mean that their card rates drop," explained Glen Lee, senior vice president with TNB, even though he acknowledged that if overall rates continued to increase then some of the card rates might rise as well. He agreed that TNB may have left money behind by not reducing a portfolio's relatively high fixed rates, but he pointed out that variable rate pricing that is more tailored to the cardholder has increasingly become an industry standard. Keith Floen, manager with InfiCorp, said that his firm also switches acquired accounts over to variable pricing unless the credit union negotiates a fixed pricing structure into the purchase agreement. "We have some credit unions that include fixed rates in the agreement but there is always a cost to doing that," Floen said, "either in a reduced premium or some other cost." Floen agreed that MBNA has likely benefited significantly by keeping the majority of its cards in fixed rates when rates were low, and he was not surprised to the hear the firm had begun to switch over to more variable rates. He predicted credit union issuers with a significant number of fixed rate cards as well would also be forced into variable pricing. "With margins as tight as they can be in the card industry now," Floen said, "there may not be much of spread between a rate that's cutting edge and one that's bleeding," he said. -

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