TMG Financial Services Release Brief for Credit Card Issuers on the Future of Managing Interest Rates

DES MOINES, IA (July 8, 2013) — In an era of historically low interest rates, credit card issuers must start planning for changing rates now TMG Financial Services (TMGFS) said in a white paper released today.

“There are many credit card issuers who have enjoyed a decent margin from their credit card portfolio despite making few, if any, adjustments in rates during the past three or four years. This means there are still a number of fixed-rate and below market rate portfolios that may not be positioned well as rates begin to rise,” said Ben Rempe, Vice President of Business Development for TMGFS, who authored the paper.

The reason growth will be stymied is directly tied to regulatory changes resulting from CARD Act. In the paper Rempe explained:

It is important to remember the impetus behind CARD Act was to protect the cardmember, which in the case of interest rates, was controlling how an issuer can make changes to the rate on current and future balances. Specifically, issuers cannot increase or decrease rates without a 45-day notice, nor can interest rates on existing balances be changed. In addition, unless the card has a variable-rate pegged to an external index like the Fed Funds Prime Rate, the rate cannot be adjusted. While financial institutions were able to once change rates overnight and the rates immediately applied to the existing balances, now changes can only be implemented on new balances, which means the “protected balance” or the balance at the lower rate can be carried on your books for years.

Rempe also noted there are still financial institutions that underestimate how CARD Act restricts the ability to make rate adjustments. The biggest difference between pre- and post-CARD Act is the fluctuation of rates. Rates simply haven’t moved since the law went into effect.

“As we’ve dealt with existing balances and brought them in line with our own pricing strategies, we’ve been able to observe how long the process takes to achieve target yield,” he said. “It takes time—three years—and this has happened in unprecedented, stable conditions. The point of this paper is to lay out the case for why credit card issuers must examine how they will adjust if rates raise 25 bps, 100 bps or more.”

A copy of the white paper is attached and is part of a larger series that will be released throughout 2013. To schedule an interview, contact Lisa Russell at 515.210.3052 or

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