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Not long ago credit unions were debating whether or not they should be offering credit cards. Today the focus has shifted away from controversy over offering credit card programs, to selling those CU credit card portfolios lock, stock, and barrel to a third party. The argument back then was that credit cards were not appropriate for credit unions and that offering them was an affront to credit union philosophy. The prevailing reasoning was that credit cards by definition encouraged members to go into debt by spending money they didn’t really have. Besides, they said, credit cards are and should be a product offered by banks. On the operations side, many credit unions worried that they didn’t have the expertise in house to get into credit cards, that the competition was already too well established and too fierce, and that member delinquencies and collections costs would increase substantially. Also, that they would need to deal with a myriad of financial arrangements, that credit union credit cards would compete directly with a credit union’s bread and butter (at that time) small loan business. Even after deciding to take the plunge, credit union officials wrestled with such decisions as the design and cost of the card, how to market it and to whom (not all members would qualify), the data processing changes a credit card offering would necessitate, and possibly most important, what outside firm would they use for the all-important back office operations. From the outset, new, existing, independent, banking related, and totally credit union based entities were all standing in line to secure this piece of credit union business. All were convinced that credit unions getting into the credit card market would represent a significant new piece of business for them. And it did. Eventually, all or most of these challenges were handled and credit unions became major players in the consumer credit card market. In the years since, thousands of members have responded to effective and creative marketing and have signed on. Operations problems are minimal. Suppliers have performed very well. The cards became somewhat profitable for credit unions offering them. That should be the end of this story, but it is not. After years of experience with credit union credit cards, a number of credit unions, some of them in the billion dollar asset range, have concluded that they are not entirely pleased with member acceptance of their CU’s credit cards. The percentage carrying one is relatively low in comparison to the total number of members who could be active credit card users. The regular usage figures are even lower. The positive impact on the credit union’s bottom line is lower still. A growing number of these credit unions, even after a final, aggressive marketing push to increase cards outstanding and usage, have concluded that it is probably not worth the overall effort it takes to maintain and grow a successful credit card portfolio. They have decided it makes more sense to sell off their credit card portfolio. That’s why this story continues. Today’s CU credit card controversy does not revolve around the pros and cons about offering one. Instead, the question has become whether or not to let an outside third party completely handle the credit union’s credit card business, from ownership to continued marketing to credit union credit card users and especially potential users. Those who have done it, cite many reasons for selling. There is a tidy sum of money that immediately flows into CU coffers. Someone else, a firm specializing in credit cards, can do and pay for the marketing, a considerable expenditure for those who have been successful in building big numbers. And the addition of a number of added benefits and perks. For the disengaged credit union, there’s no drag on the bottom line. Staff can be reassigned to areas more cost effective to the credit union and more in tune with other emerging member needs. From the members’ perspective, the changeover is barely noticeable. For all practical purposes, they still have a credit union credit card. New cards are issued, but not at credit union expense. Another name appears in small print, but the card still looks every bit like the credit union’s credit card. Contractually, cross selling by the new owner (often a banking organization) is prohibited. A detailed agreement also covers a number of timelines, rates, fees, reimbursements, etc. Those organizations looking to purchase credit union credit card portfolios are more than willing to negotiate details. The number of credit unions taking this big and once unprecedented step is growing. The number of players standing in line to buy those CU portfolios is also increasing (see regular news reports and advertisements in Credit Union Times). Not surprisingly, many credit unions refuse to even consider selling their credit card portfolios. Others have seriously looked into it and decided to back off. There is a concern that it will be impossible to prevent the new owners (often direct competitors) from cross selling CU members. Likewise, there is a concern that rates will eventually be pegged at standard bank card rates, generally higher than those offered by credit unions. How does this benefit members, they ask. The number one reason that some credit unions want no part of what nevertheless appears to be a growing trend, is the overriding fear that they will lose the much coveted relationship with their card holding members, often their most loyal and thus profitable members. Like most decisions credit unions are expected to consider, to sell or not to sell is not an easy one to make. But that’s exactly what credit unions need to do. They need to at least consider it. Once all the facts and details are assembled, and discussions are held with those who have made the leap as well as those who have decided not to do so, only then can a credit union decide which way is best for their credit union’s particular membership. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]

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Peter Westerman

Credit Union Times

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