Rising #CreditCard Fees Open Competitive Doors for Community FIs

In light of recent updates to CFPB guidelines, community financial institutions would do well to run an analysis of their credit card fee strategies. 

At least one major credit card issuer is taking advantage of newly loosened limits on credit card fees. Amex, beginning in January 2017, will charge cardholders a $38 fee if they miss a payment due date more than once in a six-month period. It’s a reaction to updated guidelines from the Consumer Financial Protection Bureau (CFPB) governing fee limits for credit card issuers. 

By comparison, most of the credit card issuers TMG works with – credit unions and community banks in the U.S. and Canada – charge late fees between $10 and $25. This presents a much more affordable credit option to fee-weary consumers. 

Credit unions and community banks working to optimize their credit card portfolios would do well to run an analysis on their fee picture today. Even small tweaks to things like when late fees are assessed can make a big difference in the profitability of a particular portfolio. Many community financial institution (FI) issuers, for instance, allow a 10-day or longer grace period. Not only can this weaken potential revenue, such a strategy can also backfire from the consumer perspective, in essence encouraging poor (and over time, costly) repayment behavior.

When considering your fee strategy, it’s also important to keep the potential longevity of the cardholder relationship in mind. How are service staff trained to manage cardholder requests? Empowering your cardholder service representatives to make in-the-moment decisions, such as one-time fee waivers or fee reductions, can make a world of difference for qualifying cardholders. It’s a strategy that’s working for several consumer-centric FIs – and one consumers have come to expect. In fact, 9 out of 10 credit cardholders report being granted a fee reversal after asking for one. 

Late fees, of course, are only one piece to the non-interest income pie. Overall, they appear to be decreasing slightly, even among the larger issuers. This underscores the importance of staying attuned to the competitive landscape and aware of your cardholder behavior, so you can design your fee strategy accordingly.