TNB Card Services, which is the card management and processing arm of credit union- owned Town North Bank, stressed during an interview with Credit Union Times that it only sold its agent-issuing portfolio, and it remained "committed and competitive" in the card-processing market.
The agent-issuing portfolio consists of about 140,000 card accounts TNB has purchased from 168 credit unions and continued to issue and serve through an agent relationship with those CUs. By contrast, TNB reported processing credit and debit card transactions for 550 credit unions.
"We are remaining strong with card processing, which has always been a core competency of ours," said Town North Bank CEO John Reap. "That has always been central to what we do."
Credit unions got together and purchased Town North Bank as a CUSO in the mid-1970s, largely to make sure they would have a means to issue credit cards.
"This was a very hard decision, a very difficult decision for us," explained Reap of the $1.3 billion bank's decision. "But these are very difficult and trying times economically for both the banking and credit union industries, and we needed to do something to manage our balance sheet."
Reap said that the bank had lost $21 million in its portfolio of mortgage-backed securities and that a key capital ratio had fallen to between 7% and 8%. He reported that the bank had not been approached by its regulator and told to sell assets but decided to on its own.
"As you know with that key ratio, you can improve by increasing the numerator or shrinking the denominator. We decided to shrink the denominator by selling some assets," he said.
He also reported that TNB's board had considered asking participating credit unions to increase investments, but the current state of many credit unions' finances made that impossible.
"You have to remember that we just raised $60 million dollars from these credit unions two or two-and-a-half years ago," Reap said. He pointed out that the effort was among the largest, if not the largest, private capital infusions into a bank in Texas history. "We did that to finance this card purchasing effort, but there wasn't any indication that we could do that again in today's economic conditions."
Still, even while the company will remain a processing option for credit unions, Reap acknowledged that its departure from the market for credit card portfolios will be a significant hole.
Since 2002, TNB has been the leading credit union-owned purchaser of CU card portfolios, a market niche that it had built upon and stressed in its agent-issuing marketing.
The next largest credit union-owned card portfolio purchasing organization is TMG Financial Services, an arm of The Members Group. But TMG Financial Services operates on a significantly different model than either TNB or Elan, according to CEO Jeff Russell.
Russell explained that TMG raised capital broadly, as a CUSO, from any credit union that wished to invest in the purchase and issuance of credit union credit cards. The broader ability to raise capital gives TMG more flexibility than TNB might have had, Russell maintained, and added that TMG has generally not focused as much on offering hefty premiums, which have to be recouped after the portfolio is purchased.
"We have been more interested in credit union partners who want to continue to offer the sorts of programs that credit unions offer," Russell said, "reasonable interest rates and fees and a commitment to member service and the long-term growth of the portfolio."
Reap also acknowledged the decision to sell the portfolio came laced with a very potent strain of irony in that the company had done precisely what it has urged its participating credit unions not to do: sell their card assets to a bank.
"Like I said, these are very difficult times, and I think a lot of credit unions and banks have had to do things that they might not have otherwise wanted to do," Reap said. At the time of the interview, the company had alerted the top 20 of its participating credit unions about the sale and found their executives uniformly empathetic and compassionate, according to Reap.
"I don't think anyone was jumping up and down and doing high fives about it," Reap said, "but they all understood why we had to do it."
Elan executives participating in the interview stressed that the two companies would work closely together to move the more than 140,000 TNB cards that are now processed on the First Data Corp platform to the Elan's own internal processing platform. This will mean issuing new cards with new account numbers and other procedures.
"We anticipate working together with TNB to minimize the potential disruption that might come with this sale," said Jeff Chernivec, senior vice president of business development for Elan.
Deanna Corona, senior vice president and general manager of Elan, firmly rejected any suggestion that the card issuer had ever used any of the card practices currently under legislative attack on any cards issued by its credit union partners.
"We have penalty rates, but these are only applied to cardholders who are routinely late, and we have never done double-cycle billing or anything like that," she said.
Currently, Elan has agent issuing relationships with 182 credit unions. The addition of the credit unions from TNB will bring that number to 350.
A random comparison of the terms and conditions of credit unions that issue cards via TNB and Elan found little difference between them.
For example, NorthRidge Community Credit Union, headquartered in Hoyt Lakes, Minn., has its cards issued with TNB. On late fees, the CU's TNB-issued credit card accounts charge $15 on balances of less than $100, $29 for balances of between $100 and $250 and $34 on balances of over $250. The over-limit fee the credit union levies is $29.
By comparison, Community First Credit Union, headquartered in Appleton, Wis., an Elan agent-issuing partner, charged late fees of $19 for balances under $100, $29 for balances of between $100 and $250 and $34 for balances of over $250, with an over-limit fee of $39.
Ondine Irving, founder of Card Analysis Solutions who opposes CU card portfolio sales, noted that both fee schedules are markedly higher than those charged by credit unions that own their own portfolios, reinforcing her observation that the people who generally take a hit in card portfolio sales are the credit union members.
"You have to remember, too, that these kinds of fees often come with other measures which are very unfriendly to consumers, such as reduced grace periods," she noted. However, she highlighted that the 20 to 25 days that Elan offered for its grace periods was actually better than the "not less than 20 days" offered by TNB.
Willie Koo, CEO of Asset Exchange, observed that Elan would have to be very careful about how it handled both the terms of the new credit union accounts and how members are treated.
"Credit unions have shown in the past that they will not renew a contract if a card-issuing partner is not living up to their expectations," Koo said. "If a credit union starts hearing from members about problems they are having with the transition or with their cards or with the terms of the card, it can come back to bite."