Smaller Lenders May Offer More Attractive Credit Cards

While the vast majority of Americans still borrow largely on credit cards issued by the nation’s top lenders, smaller financial institutions are also stepping up their lending efforts and making their accounts more attractive.

In recent months, credit unions have become particularly aggressive in marketing credit cards and improving the offerings made to consumers for these accounts, according to a report from Credit Union Times. This is a significant shift from previous lending initiatives on the part of these smaller institutions, where credit card accounts typically make up between 5 and 7 percent of overall loan portfolios.

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The largest reason for this shift toward more credit card marketing by these institutions is that the changing lending environment has allowed them to become more competitive with larger lenders, the report said. In the past, the offerings for low-interest accounts the credit card giants could extend to consumers could often not be touched by smaller lenders. Further, these accounts were typically viewed as being slightly more difficult for credit unions to manage than other loan types.

Historically, these institutions might have had credit cards and given them to qualified consumers who enquired after them, but rarely if ever actually marketed them, the report said.

“I think there are a couple of things credit cards have had to overcome at credit unions,” industry expert Bill Lehman, vice president of portfolio consulting services at Card Services for Credit Unions, told the site. “First, unlike other loans, they are unsecured debt and that always has an additional element of nervousness with it. Second, sometimes credit unions felt their credit card offerings really couldn’t compete very well with the offerings from the big banks.”

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But that has been changing since the implementation of the Credit Card Accountability, Responsibility and Disclosure Act, which passed in 2010 but took about a year to roll out in full, the report said. Now, smaller institutions are being given a more level playing field on which to compete with bigger lenders, particularly if the former’s cards are issued by top payment processors.

Of course, major lenders have also stepped up marketing efforts in recent months, once again expanding their borrowing qualifications so that borrowers with lower credit ratings can once again begin using credit cards.

Image: JD Hancock, via Flickr

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