By Christopher D. Joy
Credit card portfolio managers routinely ask our Advisors Plus Credit Consulting team whether to price their credit card APRs on a variable or a non-variable basis. This question always sparks excellent in-depth discussions on the vital importance of finding the right match between a credit union’s portfolio funding and its pricing approaches. Recently, the need to strike the right balance has taken on even greater urgency.
Driven by a rise in various interest rates, a growing possibility exists that increases in market funding costs could threaten the earnings and capital generated by credit card portfolios that rely on non-variable APRs. Advisors Plus believes that many credit card portfolios are still vulnerable and recommends that credit unions immediately begin to mitigate their risk and protect their profitability by marketing all new credit cards with variable APRs and consider taking steps to migrate existing portfolios toward variable APR pricing as well.