Rekindling Questions on Non-Variable/Fixed Credit Card APRs in a Rising Rate Environment

For many credit unions, the Fed’s 25-basis point rate increase in December 2016 — only the second in a decade — raises questions regarding the impact of rising funding costs on their margins and profitability. With analysts predicting 3 to 4 additional rate hikes in 2017, Advisors Plus recommends that issuers take timely action to protect against funding cost volatility by pricing their credit cards and other open-end credit products using variable APRs.

However, the CARD Act has eliminated the issuer protection of changing APRs on existing credit card balances “at any time for any reason,” taking the option of making wholesale changes to an entire card portfolio off the table.

What, then, should non-variable/fixed credit card issuers do? This POV lays out a game plan which begins with stress testing to quantify the impacts of various rate change scenarios and identifies appropriate actions based on those stress test results.