Small Rate Increases, Long-Term Impact

What does this mean? Rate hikes are likely to continue through 2019 and 2020 because the Feds have a favorable view of the economy. Opinions vary on just how many rate hikes there may be though. Some economists believe there will only be two. They cite flat inflation as the main cause, coupled with the viewpoint that most of the growth in 2018 will be due to business, rather than consumer spending. Others say there could be four rate hikes due to the strength of the economy and a bullish labor market. Interestingly enough, dot map plots by Fed chair members project more than two rate hikes in 2018.

So while the jury may be out as to the number of rate increases we can expect, the stage is set for continued upward movement. Steady growth, politics and slowly rising inflation are the perfect storm for long-term rate hikes. And though percentage hike increments may be small (quarter percent increments), they could have a substantial impact on lending long-term.

Auto and home loans will be at least slightly affected. A quarter of a percent increase on an automobile loan may not be as noticeable as on a home loan, and neither are likely to break the budget for most consumers. If anything, impending rate hikes might just push the savvy consumer to sign and close before the next increase so they can save over the lifetime of their loan. Credit card lending is another story altogether. Rate increases can affect APRs almost immediately since credit card terms are more fluid. This could have a big impact on how consumers view credit card spending.

Rate Increases and Your Forms

Regardless of lending type, each rate hike will affect your forms. If the Fed increases interest rates four times in 2018, your forms will be affected each time. And remember, the rate change does not just affect your lending forms; disclosures are also affected. They will need to be updated to reflect the new changes each time they occur. Therefore, make sure you are on top of your compliance game. One misstep with compliance could cost you thousands, or affect your charter standing if you find your credit union in a worst-case scenario event.

You really cannot fault the compliance officers though. They want to make sure consumers are not being taken advantage of or being misled with old, outdated information. No credit union purposely tries to mislead, but it can be easy to get caught up in daily operation procedures to the point that some things get missed. Forms compliance is not a ball you want to drop.

The best way to do this is use an excellent forms provider. Your provider should offer forms packages that:

• Comply with all state and federal regulations;
• Easily integrate with your data processor;
• Are available in multiple formats;
• Are custom-built to match your credit union's unique offerings;
• Are properly branded to your credit union; and
• Can be easily updated to “go with the flow.”

Furthermore, your provider should be available to answer any questions you may have at any moment. Rate hikes affect every type of lending form from home and auto loans to consumer credit cards. Should you have questions about a particular form change, your forms provider should be accessible. If not, maybe it's time for a change. It is 2018 after all. Resolutions are the order of the day. The Fed has made its resolution clear – to increase rates. Are your forms prepared to handle it?

Richard Gallagher is CEO of Oak Tree Business Systems, Inc. He can be reached at 800-537-9598 or [email protected].