RALEIGH, N.C. – "We felt it was very credit union-like," says Maurice Smith, president of Local Government Federal Credit Union, in describing LGFCU's new credit card policy. Members now have a choice of minimum credit card payments ranging from 3% to 6% monthly on their balances. The idea reflects the thinking behind new legislation that hikes minimum payments to prod consumers into reducing their debt more rapidly. Credit unions aren't covered by that law. But LGFCU liked the concept. "We've been observing the criticism that a lot of financial institutions and credit card companies have faced as a result of their payment policies," Smith explains. "We wanted to find a way to help neutralize some of the effects members might face. Recent regulations have required banks to up their minimum monthly payments. "We were already above that minimum, but we wanted to give members an option. They can pay anywhere from 3 to 6%. They chose the minimum that applies to their account." Financial advisors like to point out that a few percentage points can translate into savings, perhaps 46% in the amount of interest paid. It can also mean paying off the debt 46% sooner. From the credit union's perspective, Smith points out that if you define corporate interest as simply the bottom line, it's in the corporate interest to have the member pay as little as possible each month. After all, that way the credit union earns more interest. However, LGFCU felt it was appropriate to go to the members and indicate that if they wanted to pay more on a regular basis, the credit union would accommodate that. Members can switch back to the original rate, or to another. Smith says it's too early to really assess member reaction. The delinquency rate for LGFCU credit cards is 2%, about half the industry average. "We do have members who just pay the minimum balance," he notes. "We're giving them the opportunity to force budget for themselves by making a higher minimum payment. There is definitely a need for education on the consequences of making a minimum payment, so our credit union is very active in counseling. "If it turns out a member decides to make just the minimum 3% payment, and understands the costs of doing so, they will get no criticism from the credit union. The member has made a conscious decision based on issues outside the credit card – perhaps the cost of raising a child, paying for educational expenses or other concerns." News of the new credit card payment policy will be included in LGFCU's monthly newsletter as well as in a statement to credit card holders. Does Smith expect other credit unions to follow LGFCU's lead? "I think so," he answers. "Credit union boards and leaders are very well aware of the political and economic concerns that swirl around credit unions. They want to do what is best for their membership. There is not a whole lot of cost in giving members [credit card payment] options since we recently discovered we had the ability to make payment changes at the account level." -

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