We’re just one John Hancock away from a significant shift in the way many credit card providers do business. While its provisions don’t kick in until 2010, credit unions should brace for change. Here are my initial thoughts on it:
1) Credit unions should not be directly affected, because from what I’ve seen, there is not a large degree of involvement in activities prohibited or regulated by the bill.
2) I expect to see a lot of people wanting to settle the debt on their old credit card, especially when they receive that first “heads up” in the mail, especially for those more than 60 days behind on their payments. This may mean paying off existing balances for those able to do so; more likely it will mean debt consolidation.
3)Based on point 2, credit unions may see credit card delinquency rise, receiving advanced notification of rate changes may make Gen Y members more acutely aware of the rates they are currently paying, meaning they will focus on paying off high-rate balances first. This, of course, assumes the credit union credit card does not have the highest rate.
4)Crummy business practices in the card market were bad news for Gen Y, but made it easy for credit unions to stand out.
5)Balancing out #4, many providers may pull out of the youth market, mostly due to restrictions on risk pricing. If effective, this bill may make it harder for young members to get credit in the form of a credit cards . There are multiple ways credit unions can respond; one example would be encouraging students to make school related purchases using their student loan rather than a credit card (more on this when we release our student lending episode).
6)Now youth under 21 need a parent to sign with them to get a credit card unless the youth can independently verify their income. CUs should start prepping marketing materials for the 18 to 21 crowd that integrates the parents. However, prepaid debit almost seems like a better option at this point.
Feel free to agree or disagree. Further, do you see any holes in the bill? Where can credit unions capitalize on the market once bill comes into effect? No doubt we’ll eventually drill down and do an episode on what exactly this will mean for credit unions trying to reach Gen Y, just entertaining some early reactions.
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