Credit Unions Provide Credit Card Alternative for Consumers

Credit unions up until recently have not been a first choice of credit card services for many consumers.  Credit unions, however, just might be the alternative to traditional credit card lenders that many consumers are looking for.  The pending changes to credit card regulations have put both borrowers and lenders on notice.  Both parties are preparing for the legislative changes coming down the pike in early 2010.  Most major credit card issuers have been raising interest rates, jacking up fees and cutting or freezing credit lines for many of their cardholders.  The changes to the Truth in Lending Act, however, do not appear to offer much relief now or in the future to the gridlock between borrowers and lenders.

Borrowers who are currently struggling to reduce credit card debt or have made a way of life by relying on credit are now facing the triple threat of increased fees, more hidden costs and lowered borrowing limits. Undoubtedly, consumers have over borrowed and have allowed rampant consumerism to become their very way of life. These individuals, will soon find their debt becoming even more expensive, especially if they continue to borrow at the same pace despite much higher borrowing costs and increased fees.

Meanwhile, credit card issuers are looking for a way to maintain their bottom line and stay afloat. Major bank centers, card issuers and lending institutions are finding themselves desperate to hold the line on profits and revenues in a struggling economy. Faced with increased losses due to bankruptcy, the stock market crash and pending legislation forcing them to temper their lending practices, these big names are taking measures to ensure their financial futures.  On balance, consumers have seen this over the past 18 months in the form of increased fees, quickly levied late fees and far greater scrutiny in approving loans and credit.

Given the financial playing field being in a state of disorder, this may be the ideal time for credit unions to step into the mix by taking a more active role in the lending arena.  With the drastic changes in the credit card market, many consumers are turning to their credit unions as an alternative.  The recent financial struggles of the country have created an emerging market for credit unions.  According to the Federal Reserve, credit unions increased their overall credit lines by 9% since the beginning of 2008.  The loss and delinquency rates for credit unions are much lower than those of bank issued credit cards.

Credit unions have slowly and steadily built a strong consumer base and, in general, have built a strong sense of reliability and reputation with their customers. In the past, credit unions have been viewed primarily as savings instituions but have not been seen as primary sources for lending.  Credit unions operate differently than typical card issuers, taking a much more conservative approach to credit card approval. Credit union credit cards typically don’t offer rewards programs or long periods of 0% APR or no interest, but their cards are typically fraught with far less fees and much lower interest rates than typical variable rate credit cards.

Consumers who have had many options for borrowing up to this point are seeing those options disappear as the economy continues to struggle pulling out of its downturn.  As borrowing options shrink, become more costly and far more stringent to acquire, consumers may look to their tried and true credit union as an option for credit card services. Consumers may want to reconsider the credit card options that their local credit unions provide.

Financial advisors project that if credit unions continue to follow their steady conservative practices and don’t fall victim to the same tactics as typical credit card lenders there will be a spike in credit union lending specific to credit cards in the future, a welcome alternative that consumers are looking for to help bridge the gap between responsible borrowing and potential debt.

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This entry was posted on Thursday, November 5th, 2009 at 2:01 pm and is filed under Credit Card News, Debt & Consolidation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.