ARLINGTON, Va. – Credit unions thinking of selling their credit card portfolios need to be aware of a portfolio purchaser’s fee structure, but not necessarily afraid of it, say card industry executives. “Fees are getting a lot of attention these days because card interest rates are so low and because the card issuers have to make money on some part of their business,” said R.K. Hammer, CEO of R.K. Hammer and Associates, a card portfolio evaluation and consultant firm based in Thousand Oaks, California. “But if a credit union selling a portfolio is aware of a potential buyer’s fee structure, it can exercise some control over how much of a buyer’s fee structure will apply to its cardholders,” he added. The issue of fees and fee practices should figure heavily in a decision to sell a portfolio or not because the new portfolio owner’s fees may be the only consistent point of contact between the credit union member, who still holds the credit union’s branded card, and the new card issuer, Hammer said. “It only takes a couple of bad experiences with fees to make a cardholder stop using that card as much,” he noted. But while Hammer and other executives emphasized that credit unions thinking about selling their card portfolios need to consider their potential buyer’s fee structure carefully, those fee structures don’t necessarily mean higher costs. In fact, in some ways changing to the buyer’s fee structures can benefit the cardholder. For example, according to Card Services For Credit Unions, the association for credit unions that process their card transactions with Certegy Card Services, 30% of their 2,400 member credit unions charge an annual fee on their cards, whereas none of the companies that purchase card portfolios do so. “MBNA stopped charging an annual fee when it became clear that having an annual fee was one of the first things that got consumers to drop a card,” reported Steven Fuld, senior vice president for Boston-based Kessler Financial Services, the firm which acts as an agent for MBNA in many of its card purchases. MBNA has purchased 18 credit card portfolios so far this year, Fuld said, and if any of those cards carried annual fees MBNA has removed them. Other changes can come as well. While it is relatively rare, some credit unions can have late fees or over limit fees on their cards that are actually higher than the industry, Fuld and other executives explained. In those cases those fees drop as well. Of course it is also possible that if a card purchaser’s fees are higher than those of the credit union then fees can rise, but that can be subject for negotiation between the credit union and its potential portfolio buyers, Hammer explained. In many cases, the actual fee structure can be relatively inflexible because a card issuer managing thousands of accounts needs to have some uniformity in its card portfolios, but Hammer and other executives reiterated that credit unions need to raise the issue and ask the questions. “Of course they might not be willing to negotiate on that point,” he said “but you will never know unless you try.” Hammer and other executives also said credit union sellers need to have their eyes open about portfolio management practices. For example, MBNA used to include credit union cardholders in its policy of raising interest rates on a card if the cardholder was late with even one payment to any of their creditors, not just the card issuer. They stopped the practice after the credit union members of its advisory Credit Union Council raised a red flag about it, a flag industry observers said should have been raised during the negotiation process. Other issues to raise could include making sure a new card issuer continues the credit union’s program of issuing credit building cards to low income members or those rebuilding their credit histories. Who’s the Biggest “Fee-er” of Them All? According to Fuld, MBNA, in addition to not charging an annual fee, structures its late fees in a tiered approach. If the cardholder carries a balance of $100, the fee is $15. Late payments on balances of $100 – $1,000 cost $25 and balances over $1,000 earn $35, one of the highest in the industry. The firm does not charge higher interest rates if a credit union cardholder makes a late payment to other creditors, but will increase interest rates if the cardholder makes payments to MBNA late consistently. Keith Floen, managing director with InfiCorp, reported that his firm has adopted a more or less single fee approach to its card accounts. “Essentially, whenever anybody asks me what our fees are, I say $29, because that’s pretty much what they are.” Floen said that his firm has had the $29 flat fee for about four years and added that his firm does not charge late fees either. He also noted that the firm will only increase interest rates for a period of time if a cardholder is late with more than two payments. Once the cardholder begins making payments on time again, InfiCorp drops the interest rate back to its previous level. TNB Card Services, is a subsidiary of credit union owned Town North Bank, has a fee structure that is set by law, according to Glen Lee, senior vice president for TNB Card Services. Under the laws of Texas, Lee reported his firm can charge only 5% of the balance on the card or $15, which ever is greater. In practice, that means most late fees are $15, he added. But no matter the details of a company’s fee structure, Hammer and other industry executives agree that the pressure to wring as much income as possible out of fees will continue as long as interest rates continue as low as they have been lately and the market for new cardholders continues at its current rate. [email protected]

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