One of the many changes from the Credit CARD Act of 2009 was the limitation on using the term "fixed" in relation to credit card rates. Credit unions that want the ability to increase the APRs on their credit cards in the future need to very carefully manage their advertising and disclosure of credit card rates. 

Three Types of APRs

After the Credit CARD Act changes, credit unions have three options for their credit card rates: (1) variable; (2) non-variable; and (3) "fixed." While most credit unions do not use the term "non-variable" - it is the term used by regulators to describe a rate that is not variable and for which the credit union reserves the right to increase the APR (for future transactions). The first step for credit unions is to determine the type of APR that applies to its credit cards. This is necessary in order to determine if its advertisements, disclosures and - just as importantly - its procedures are compliant. 

Restrictions on Using "Fixed"

If your credit union does not want to offer variable accounts, what are your options? The best approach is to offer "non-variable" rate credit cards. With a non-variable APR (such as "8.99% APR"), the credit union has made no promises regarding how long the APR will remain at 8.99% APR. Thus, the credit union has the ability to increase the APR - for future transactions - by following the formal "change-in-terms" process under Regulation Z.

Variable-Rate Credit Cards

Many credit unions offer variable-rate credit cards to their members. Variable-rate credit cards have the benefit of an APR that increases (or decreases) as the underlying index adjusts. A variable-rate credit card includes an "index" and a "margin" that, together, make up the credit card APR. A change in the underlying index does not require the credit union to notify members (as the index was disclosed up front to the members). However, a change in the margin would trigger a formal change-in-terms process. 

Conclusion

There is no "right" answer to which type of credit card product to offer to your members. However, it is incredibly important to understand the restrictions and limitations that are attached to each type. A credit union's decision to offer a particular type - such as a "Fixed" rate card - should be a conscious decision. Further, any changes from one type of credit card APR to another should be conducted very carefully as additional restrictions impact those transitions. 

Additional Information

Howard & Howard Attorneys can help your credit union navigate these complex issues and develop a consistent plan for your credit card products. If you have any questions or would like additional information, please contact Steve Van Beek.