Wescom Is Picky on Card Portfolio Buys
Brad Wylie, president of the Credit Union Card Association, a division of Wescom, said the Pasadena, Calif.-based credit union picked up card accounts worth roughly $65 million before cinching the purse strings on card portfolio buying in September 2008.
"We felt we needed to take a breather to let the economy stabilize and for things to shake out a bit," Wylie said, adding that the credit union's card staff was busy making sure the credit union's card portfolio would be compliant with the latest round of card regulations.
Wescom's current overall card portfolio stands at more than $248 million in outstanding balances from 80,609 accounts, according to the credit union's March Call Report.
Wescom purchased card portfolios from Coastline FCU, Bethpage FCU, People's FCU, Star USA FCU, Rock Valley FCU, SMW FCU and the since-liquidated Cal State 9 CU. Wescom would not release the name of its last credit union card partner, citing confidentiality agreements.
Wescom's card portfolio purchases and subsequent card conversions were handled in partnership with PSCU Financial Services. The two organizations had been partners in an earlier effort to buy card portfolios through an industrial loan corporation, but that effort faltered in the face of regulatory concerns about the role of such corporations.
Wescom and PSCU moved forward with the effort when Wescom received approval for a California credit union charter called a central charter. The central charter allows the CU to serve members of other CUs that are, in effect, referred to it by their own institutions. It allows Wescom to buy the card portfolios of other CUs and manage the accounts in agent relationships.
The bulk of Wescom's purchased card accounts and balances came from Bethpage's 14,000 accounts with balances of $30 million, but Wylie said the others have also helped fuel CUCA's progress.
However, the cards from now-failed Cal State 9 provided a special challenge, Wylie explained.
The NCUA conserved the credit union in November 2007 and liquidated it on July 1, 2008. Wylie said Wescom had purchased and converted the portfolio prior to the NCUA's action. The NCUA's move took Wescom by surprise, and Wylie suggested that, had Wescom known it was coming, CUCA would not have made the purchase.
"We are not really interested in buying card portfolios for the sake of buying card portfolios," Wylie said. "What we are really looking for is that ongoing relationship and growing the purchased portfolio."
Wylie said the Cal State 9 portfolio purchase had brought 3,000 to 4,000 card accounts worth roughly $10 million and, after the Cal State 9 liquidation, between 3,000 and 4,000 potential problems.
After the liquidation, some of Cal State 9's assets and its members were moved to the $4.2 billion Patelco Credit Union. Patelco, Wylie said, has its own card program and was not particularly interested in starting an agent relationship with Wescom for the former Cal State 9 cardholders.
On the surface this did not seem to be too much of a problem. Due to Wescom's central charter, the Cal State 9 cardholders were already Wescom members, Wylie pointed out.
However, Wescom didn't have any branches in the area where most of the cardholders were located and, due to the agent issuing agreement with Cal State 9, Wescom could not market any other Wescom products and services to the cardholders.
"So we closed the accounts of former Cal State 9 cardholders who wanted to close them, and we reissued the other cards with a generic front," Wylie said.
The arrangement enabled the former Cal State 9 members, who were now Patelco members, to keep using their Wescom-issued credit cards, Wylie explained.
The Cal State 9 liquidation proved to be merely the herald of the problems Wescom would face.
Wescom, like many California credit unions, has suffered mightily during the ongoing economic downturn. According to its first-quarter data, the credit union's net worth ratio stood at just 5.45%, significantly lagging behind its peers, and the credit union was running in the red by almost $21.5 million as of the end of March.
Wylie said that the credit union had been aware of the shifting economy and card market before it decided to take a break from card portfolio purchasing and selected its card portfolio partners carefully. Aside from Coastline Federal and Cal State 9, Wescom's other credit union agent partners are in New York, West Virginia, Illinois and Wisconsin.
"I think our greater geographic diversity in our card portfolio gives us more strength moving forward," Wylie said.