Credit Union Times
Wednesday July 13th, 2005
By David Morrison

The
Woodstock Institute, a sometimes critic of mainstream credit unions and
an member of the National Community Reinvestment Coalition, has issued
a report on bank and credit union credit cards which praises credit
unions overall for their behavior.

The
think tank’s survey found that while cards issued by credit unions have
similar purchase interest rates, they also come with fewer fees, lower
fees, lower default rates and overall conditions which are much easier
to understand.

“The
details of the credit union card show how credit card lending can be
done sustainably without exorbitant penalties and misleading terms and
conditions,” the Institute said.

The
Institute surveyed the top 10 credit union credit card issuers, the top
10 bank card issuers and the largest 10 credit unions in the Chicago
area.  The Institute is based in Chicago and often references
local conditions in its reports.

The
10 credit unions are Navy FCU, Pentagon FCU, Suncoast Schools FCU,
Boeing Employees CU, Pennsylvania State Employees CU, Digital FCU,
Orange County Teachers FCU, Vystar FCU, America First CU and Golden 1
CU.

The
survey found that credit union credit card practices differed in some
ways, though they also resembled each other in some ways.  For
example, the Institute noted that all 10 banks in its survey advertised
a range of possible purchase rates for each card, rather than on
specific rate.

This
practice means the consumer is “buying” the card without knowing its
true cost, the Institute said.  Upon receipt of the application,
the bank will determine the card’s rate based on the consumer’s
creditworthiness and subsequently offer a contract based on it. 
The consumer is not told the method for which his-her creditworthiness
is determined.

But
credit unions were much less likely to conceal the initial purchase
rate by advertising that a purchase rate would be fixed
post-application within a range, the Institute found.  Ranges were
advertised by five national credit unions and only one Chicago region
credit union.  Instead of advertising a range, credit unions were
more likely to have three levels of creditworthiness –
Standard/Classic, Gold, or Platinum – each with a different
corresponding rate.

But
while the relationship between the level of credit and pricing was
fixed for a number of the credit unions, consumers would still only
know after they receive the card in which creditworthiness category
they would be placed.  “It is clearly not possible to shop for a
price if the price is concealed in this manner,” the Institute noted.

The
bottom line is that the terms and conditions of credit cards issued by
the large banks are much more complex than those of the large credit
union issuers, the Institute said.  ‘Those complexities are likely
to result in the bank customers not understanding the full cost of
using the banks’ cards and therefore in incurring much higher fees,”
Woodstock added.
 
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