June 26,2009

• Who Do You Believe?, Pt.2
    Apples to apples?

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  So, to contrast some of the subtle and not-so-subtle differences between the main-line credit card industry and credit unions who issue credit cards, here are some of the differences found by the research performed by the Bubb & Kaufman team:

  1) Permanently jack Interest rate for infrequent late credit card payments:
   O   Industry -- Virtually all for-profit issuers do.
   O   Credit Unions -- Most credit unions do not.

  2) Jack Interest rates excessively for infrequent credit card over-limit charges:
   O   Industry -- Nearly all for-profit issuers do.
   O   Credit Unions -- Hikes and penalties average only half as high.

  3) Sock it to those who keep running credit card balances with APR hikes:
   O   Industry -- As of late, this segment has become a favorite target.
   O   Credit Unions -- Not practiced.

  4) Established grace-periods for credit card payments:
   O   Industry -- Generally the shortest allowed by law. Some advocate no grace at all.
   O   Credit Unions -- Generally liberal.

  5) Standard systemic credit card fees (like Membership, etc.):
   O   Industry -- Becoming standard for new accounts. Being phased into existing accounts.
   O   Credit Unions -- Generally only about half as high as credit card industry.

  All this contrast, of course, begs the question "Is this a fair model to be used in comparison?" The assessment from the Bubb & Kaufman is "Absolutely." Credit unions and industry lenders do, after all, compete in the same market. To a point their loyalties are also similar. They answer to shareholders/investors and provide dividends. They each must support their own overheads.

  To the question: "How significant is the tax structure between the two?" Since tax is only paid on profit, only the profit portion is taxable. This means that the credit unions are not expected to show profits and will pay no tax. On the other hand, however, the credit card industry aren't currently paying taxes right now because of the phenomenal charge-off losses their incurring. That should change over time, of course but, for now, neither entity: credit unions now major credit card lenders are paying much tax. So, at least for this duration, the model should serve as an excellent comparison.

  To Be Continued...
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