Corporate Worries Trigger Iowa League's Plan to Buy Card Bank
The plan, described both as "exploratory" and an "alternative business model" involves an application submitted Sept. 18 to the Federal Reserve Bank of
Chicago and the Comptroller of the Currency to form a holding company and acquire the wholesale $12 million CrediCard National Bank of Tucson for an undisclosed price.
The CrediCard proposal has been in the works since last spring, league officials said, and included hiring the Sheshunoff consulting firm of Austin, Tex. as well as a Minneapolis law firm to come up with an alternative service vehicle to protect the "closely linked and unique" arrangement the league has with the $94 million Iowa Central Corporate.
That corporate is among the very smallest in the network of 28 corporates now being looked at by the NCUA under its restructuring plan due out in November.
In a formal statement describing its proposal, the Iowa League said Iowa Central is "a small but well-capitalized corporate" that has already conveyed to its members that it is "examining its future to determine if it can continue to provide the same competitive products and services, considering its relatively small size in a changing regulatory environment."
Based on that understanding, small credit unions in the league asked its leadership "to look for a resolution that would maintain local autonomy and
direction of Iowa credit union correspondent services," said Pat Jury, league president/CEO.
Apart from local ownership and autonomy considered as vital, Jury said other priorities include "ensuring seamless transition to a new institution" as well as assuring its members that any alternative vehicle such as a bank "serves all credit unions regardless of asset size." Moreover, any alternative should provide "similar products, services and pricing, and retains current Iowa Corporate Central CU employees," he added.
The proposed acquisition of a bank charter would provide Iowa credit unions with settlement services, access to payment systems and relationships with Visa and MasterCard, Jury said. A secondary benefit of the charter would be to facilitate the league's credit card processing expansion through The Members Group, a league affiliate.
"This application is in response to the needs communicated by Iowa credit unions based on the uncertain future of Iowa Corporate," Jury said. "We have complete confidence in the NCUA."
The Iowa Bankers Association already gave hints it might object to the proposed purchase.
John Sorensen, president/CEO of the bankers group, said, "We became familiar with the application a week ago, and now we want to study its implications. We've had this controversy before where credit unions try to buy a bank and it has raised eyebrows."
Though the league's submission to bank regulators was a surprise to some credit union leaders, the Iowa group said it has conducted several town hall meetings for Iowa credit unions concerning the application and received strong support.
State league officials downplayed the notion that the bank idea could be copied in other states.
Roshira Holub, chairman of the American Association of Credit Union Leagues, said most other leagues "do not have that type of relationship with their state corporate and therefore the model would not necessarily apply." Holub, who also is president/CEO of the Missouri Credit Union Association, said that with so much uncertainty reigning in the corporate network, it is logical for the Iowa league to assess the current business model and alternatives "to provide competitively priced critical settlement and payment services."
Echoing Holub, the lead attorney handling the league's Chicago Fed application, Steven J. Johnson of Lindquist & Vennume, Minneapolis, said credit unions "are operating here on a very narrow precedent" in buying a wholesale bank. Moreover, the proposed transaction needs to be viewed narrowly as offering legal options and should not be seen as any kind of Trojan horse to compete with banks.