Could Fed Rate Increase Reduce Your Credit Union’s Future Card Margins and Profitability?

New white paper shows credit unions how to ask the right questions and create the best game plan to minimize risk in a rising rate environment

St. Petersburg, Fla. – (December 16, 2016) – The announcement by the Federal Reserve Open Market Committee of a 0.25 percent increase in the fed funds rate — only the second time the FOMC has raised rates this decade — could negatively impact margins and profitability for many credit union credit card portfolios, according to Chris Joy, Principal with PSCU’s Advisors Plus credit card consulting team.

Joy notes many credit unions have grown accustomed to notably high interest rate margins — often as high as double digits — as a by-product of the Fed’s policy of holding its target fed funds rate to steady, record lows over the past eight years.

As analysts look for an additional 3 to 4 rate increases to follow during 2017, Joy advises that the rising rate environment should rekindle questions surrounding credit card portfolios that carry non-variable or fixed APRs.

What’s more, Joy cautions, “As eight years of declining or stable funding costs shift toward a rising rate environment, credit union regulators, boards of directors and senior management alike will be seeking information regarding the impacts of rising funding costs on margins and profitability.”

According to Joy, credit unions cannot do as much as they once could to mitigate the impact of these declining margins given the restrictions of the CARD Act in 2009. Because issuers no longer have the regulatory latitude to change APRs at any time and for any reason, credit card portfolio managers must be particularly attuned to events in the marketplace and trends within their portfolios.

Joy and his fellow PSCU credit card experts recommend that credit unions begin by stress testing their 2017 budgets to address possible reductions in interest margins and profitability over a likely range of scenarios. Once credit unions have quantified those possible impacts, they will have the information they need to communicate to key stakeholders proactively to avoid surprises and develop plans to minimize risks.

For more on the specific pricing options and implementation tactics that Joy recommends for credit unions in a rising rate environment, read the PSCU white paper, entitled “Rekindling Questions on Non-Variable/Fixed Credit Card APRs in a Rising Rate Environment.” The white paper can be downloaded at and together with numerous other credit card consulting and marketing insights from Advisors Plus.

Click to download the complete white paper.

About PSCU

Established in 1977, PSCU (St. Petersburg, Fla.) is the nation's leading credit union service organization (CUSO). The company was recognized as CUSO of the Year in 2016 by the National Association of Credit Union Service Organizations. PSCU’s products, financial services solutions and service model collectively support over 850 Owner credit unions representing more than 20 million credit, debit, prepaid, online bill payment and mobile accounts; protect over 2 billion transactions annually from fraud; and optimize credit union performance and growth. Comprehensive 24/7/365 member support is delivered through call centers located throughout the United States. For more information, visit