TYPES OF CREDIT CARDS
General Purpose Credit Cards
General purpose, or universal, credit cards can be used at a variety of stores and businesses. They take on many forms, including standard, premium, affinity, co-branded, corporate, home equity, and cash secured programs, each of which is briefly described next.
Standard Credit Card Programs:
These cards are usually marketed to consumers who meet or exceed the institution’s minimum credit criteria but that may lack sufficient credit history or may fail to meet some of the institution’s other credit criteria. In addition to cash secured credit cards, unsecured standard credit card programs are frequently used for providing credit to subprime borrowers.
Premium Credit Card Programs:
Premium credit card programs tend to be marketed to consumers that have higher income and or higher credit scores than those consumers offered standard credit cards. Premium programs have traditionally consisted of gold and platinum credit cards. Premium credit card programs carry lower interest rates, waived annual fees, and higher credit limits.
Affinity Credit Card Programs:
Affinity relationships are partnerships formed between financial institutions and unaffiliated groups generally non-profit organizations such as, alumni associations, professional organizations, and fan clubs. A contractual agreement governs the relationship with the affinity partner, and the affinity cards issued usually carry the affinity partner’s logo. Compensation varies, but the affinity partner endorsing the card usually receives financial compensation based on the projected level of acceptance and use by its members. Compensation often comes in the form of the sharing of annual fees, renewal fees, interchange income, and interest income
Co-branded Credit Card Programs:
Co-branded relationships are partnerships formed between financial institutions and unaffiliated organizations, generally for-profit organizations such as airlines, automobile manufactures, and retailers. A contractual agreement governs the co-branded relationship, and the co-branded card usually carries the co-branded partner’s logo. Compensation to the co-branding partner often takes the form of sharing interchange fees and/or rebates to its customers. Rebates to customers are normally based on a percentage of purchases or transactions, and the percentage often varies depending on whether purchases were made with the co-branding party or another entity.
Corporate Credit Card Programs:
Corporate card programs are for business needs. They are contractual agreements between a sponsoring entity and a financial institution, in which the financial institution issues corporate cards to select employees of the sponsoring company. The sponsoring entities may take on several forms including small businesses middle market businesses local, state, or Federal governments and large corporations. With this type of program, examiners should determine if the institution is allowed to make commercial loans. While most banks are permitted to make commercial loans, others are prohibited by state law or charter restrictions.
Travel and entertainment cards are used for business functions such as travel, lodging, and entertainment. The contract identifies the repayment terms and whether the sponsoring company guarantees the loans.
Procurement cards are used for a business’s purchases of materials, office supplies, and miscellaneous items.
Home Equity Credit Card Programs:
Home equity credit cards are secured by housing assets. These credit cards provide consumers with the benefits of a traditional home equity line of credit while allowing them quick, easy access to the line’s funds via the credit card. Home equity credit card lending involves a significant amount of documentation due to the mortgages, insurances, and other aspects involved.
Cash Secured Credit Card Programs:
Cash secured credit cards are generally marketed to two consumers groups: those with poor credit scores or prior credit problems and those with a limited or non-existent credit history. Cash secured credit card lending can be profitable and attractive to institutions because the receivables are self funding, finance charges and fees are high, the collateral is liquid, and new markets are opened.
Proprietary Credit Cards
Proprietary cards, also called private label cards, are issued under a contractual agreement between financial institutions and third parties, usually large retailers, for the purpose of consumers transacting business with that entity. Private label cards often exhibit different traits than general purpose cards in that private label cards normally have lower credit limits, higher interest rates, higher credit risk profiles, and limited use.
Cash Access Credit Cards
Cash access credit cards are marketed to consumers who tend to prefer cash advances over purchases.
