If you have given up on the idea of finding a credit card deal with reasonable terms, take heart. According to a new study by Pew Charitable Trust, while bank credit cards continue their appalling performance, credit union cards passed the review with flying colors.
The report, issued by the Pew Health Group’s Safe Credit Card Project, finds that credit cards issued by credit unions come with numerous advantages over bank-issued cards. Firstly, the advertised interest rates on purchases and cash advances on average is significantly lower than those of credit cards issued by major card companies, such as Bank of America, Citigroup, or Chase. In July of 2009, the median advertised interest rate on cards from the 12 largest credit unions ranged between 9.90 and 13.75 percent annually, about 20 percent lower than the range for bank-issued credit cards. The difference in the interest rate charged on cash advances was even greater; the credit unions included in the study charged a high of 13.75% interest on cash advances, compared to as much as 21.24% by banks.
Credit cards offered by credit unions also came with much lower penalty fees. The median late fee and over-the-limit fee were $20, compared to $39 for bank credit cards. The penalty charges were not just lower, but less frequent as well.
The study also found that the days of low interest credit cards may not be entirely over, at least for members of certain credit unions. Some credit unions, such as Boeing Employees, Navy Federal and the Pennsylvania State Employees Credit Union, still advertised credit card interest rates below 10 percent.
Perhaps most importantly, the study found that credit cards issued by credit unions were less likely to feature “unfair or deceptive” practices. Almost half of the credit union cards had no penalty rate, and for those that did, the default interest rates were substantially lower than for bank credit cards. The median penalty interest rate was 17.90 percent compared to 28.9 for bank credit cards. Further, default penalties were less likely to continue on indefinitely. For about one third of the credit union cards, the penalty rate would automatically reset to the normal purchase APR once the cardholder paid on time for 3 to 12 months.
The study concludes that credit union cards comply much more closely with the guidelines against “unfair or deceptive” practices developed by the Federal Reserve last year. The authors suggest that credit union cards provide useful benchmarks when the Federal Reserve develops new guidelines for penalty rules that are “reasonable and proportional,” as required under the Credit CARD Act.
Despite their virtues, credit union cards come with one big drawback: they are harder to come by. Credit unions command a very small segment of the credit card market. The largest 12 credit unions control only 1 percent of overall credit card lending. Credit unions are typically nonprofit organizations open only to members, who share some form of affiliation, such as employees at universities, teacher’s unions, or military bases. Many small communities also feature local credit unions.
If you don’t have an affiliation that gives you access to a credit union, consider the Pentagon Federal, available to members of the National Military Family Association, an organization open to anyone concerned with the well-being of the military and willing to pay the $20 membership fee. Alternatively, seek out some of the few remaining low interest bank credit cards, such as those offered by Simmons First National Bank.
