The credit-union model of credit cards

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An op-ed in today’s NYT argues that despite new legislation restricting the fees credit-card companies can charge consumers, there’s a decent chance that your good-citizen cardholder won’t suffer a worst-case scenario of high annual fees, absolutely no perks and interest charges that start to accrue as soon as purchases are made. Ryan Bubb and Alex Kaufman, doctoral candidates at Harvard, point out that credit unions already largely comply with the terms of the new law, and they manage to offer plenty of the same perks cardholders get from other card issuers. They write:

We have performed a study that compared credit cards issued by investor-owned banks to those issued by customer-owned credit unions. We found that credit unions are less likely to charge the fees and penalties that the new act hopes to eliminate — and when they do, they charge less than other issuers.

While virtually all banks and other for-profit issuers increase the interest rate if the borrower fails to make a minimum payment on time, most credit unions do not. Similarly, credit union fees for exceeding the credit limit are on average just half those of other issuers. But contrary to industry assertions, more responsible card users don’t pay the price. Credit union cards actually offer lower annual fees and longer grace periods than regular cards.

Here’s the study they’re referring to (it’s a PDF).

Now, Bubb and Kaufman do admit that rewards programs are likely to become less lavish—in fact, they already have. But they don’t particularly care if it means that people overwhelmed with debt stop “subsidiz[ing] the vacations of those who manage to pay on time.” I’m with them on that.

I think this is a particularly telling chart from their paper:


The credit-union model of credit cards is, at its heart, one of moderation, one without extremes at either end. That would definitely be interesting to see more broadly adopted.