An article in the May 16 issue of Credit Union Times, “Should you sell your credit card portfolio,” offered some “good reasons” for selling a credit card portfolio. The suggested “good reasons” were given by a credit card portfolio sales broker. While every business decision a credit union faces has pro’s and con’s, a full investigation of the facts related to the sale of a card portfolio indicates that many credit unions would suffer as a result. Here’s why: You lose control of your relationship with your card member. Your relationship with your members is at the heart of what a credit union is all about-it’s your point of differentiation from a bank. By selling your card portfolio, even though your name remains in the forefront of the product, you effectively lose control of how your card member is treated, what fees are charged, what APR is in place, and all the other terms and conditions of your card program. What will happen when the card with your credit union’s name on it no longer stands for what is best for your members? Who will feel the heat? What impacts will that have on your other relationships with your member? Will they come to you for their next auto loan? Will you lose them all together? You lose control over your marketing program. Large issuers will not spend marketing money unless they are acquiring accounts at an acceptable return on marketing dollars relative to other marketing options. Most income projections for agent issuing relationships are based on portfolio growth. Typically, within a few years, agent issuers reach a point at which there are diminishing returns on marketing dollars. In an agent relationship where you have no control over marketing, how will you ensure that the issuer will continue to invest in marketing your program? Will they stop soliciting for new accounts or encouraging usage of your card? Will you be left high and dry? As a suggestion: If you elect to sell your portfolio, require the issuer to place in the agreement a minimum annual marketing commitment for which the credit union should bear no expense. You lose the performance of the asset. It is generally accepted that a credit union that sells its portfolio would suffer at least a temporary loss of income. It is also logical that unless you can find an investment that can utilize the entire infrastructure of the credit card program, it will never overcome that loss of income. To make it work, you must fully re-deploy or discharge staff. Without the elimination of this overhead, it would require a minimum investment income of 6%, excluding loan losses, to give the equivalent return most credit unions receive from their credit card portfolios. Are you ready to do what it will take to achieve an equivalent return? Where will you find an alternative investment that serves the member and provides this kind of return? Who will be impacted among your employees? Most consumers typically select their primary provider based on the presence of a frequently used transaction account, which underscores the importance of having an attractive card product offering. Credit union members have a 6% share of U.S. assets, but hold a disproportionately larger 16% of the primary financial relationships. If credit unions truly want to be full-service providers to all the consumer’s financial needs, not offering the largest and most popular source of revolving credit to their members makes no sense. Credit unions have fundamental reasons why they should retain control over their card programs. If you are still considering selling, are you ready for the following: higher APR’s and onerous fees; cardholder conversion; re-issuance of new plastics; re-stocking of collateral materials such as take-ones; de-linking of member credit card account information from interfaces; disregard for relationship in underwriting; lower revenues; redeployment of assets; employee retraining; and member confusion? In the end, as you consider the issue, ask yourself these last two questions: Am I ready to lose control of my card member relationship? And, if this product can’t be profitable, why are there banks willing to pay a premium for it?

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