ARLINGTON, Va. – Just how essential is it to issue credit cards?Whether issued on their own or through an agent relationship with acard issuing bank, credit cards are generally considered essentialitems in a competitive credit union's product mix. But three creditunions with more than $500 million in assets say that their nichesin their markets don't require them to issue cards, and thatsometimes their members don't want them. Alan Kaufman, CEO of the$688-million Melrose Credit Union, based in Briarwood, New York,said that Melrose has not issued cards because the credit unionpreferred to pay better dividends and the cost of funds kept thecredit unions spread too narrow to make a competitive cardportfolio worthwhile. According to the NCUA, Melrose's cost offunds to average assets ratio as 2.80 as of the end of 2003, morethan a full point over the 1.76 of its peers. “We really aren'tlooking for another way to make lots of loans,” Kaufman explained“We are already very well loaned out.” Kaufman added that hismembers have generally indicated more interest in the credit unionslow interest rates on the auto loans and mortgages it offers, aswell as the generally good rates it offers on it share accounts andcertificates of deposit. He added that he is not terribly concernedabout Melrose members getting credit card accounts from banks,explaining that his 18,000 member's relationships with the creditunion are sufficiently strong that he didn't feel any compulsion tohave a card that was going to have to fight to be the top of hismembers' wallets. Melrose does offer checking accounts, which carrya small interest rate, and a debit card which can give memberseasier access to their funds. Melrose also offers share securedpersonal loans than can help meet a member need for the sorts ofcash that sometimes people use credit cards to obtain. The interestrates on Melrose's share secured loans are just 2% over the shareinterest rate. In Whitefish, Montana, Charley Abell, CEO of the$516 million, 43,000 member Whitefish Credit Union, said that thelast time he had asked the 200 members attending the credit union'sannual meeting about whether they wanted the credit union to issuea credit card, they had overwhelming voted no. “It was prettyunanimous,” Abell recalled. Abell unabashedly calls WhiteFish“plain vanilla” and praised the approach, which includes notissuing credit cards, for its efficiency. The credit union'spayroll deduction program, which now includes 350 area employers,takes only two of Whitefish's 54 employees to run. The payrolldeduction program, along with bill payer program (the credit uniondoesn't offer share drafts) are concessions the credit union hasmade to serving its members' need while still keeping a sharp eyeon costs, Abell explained. “I tell our members who want a checkingaccount that there is a bank down the street that with a smalldeposit would probably let them have free checking,” he explained.The bill paying accounts differ from a share draft in that themembers designate the payees and there are no paper checks ordrafts generated. And the accounts anchor the credit union's debitcards, which is does offer. The emphasis on keeping the creditunion's mission, products and services simple has helped it earn areturn on average assets of 1.61 as of the end of last year, wellabove his peers 1.06, according to NCUA. Like Melrose, Whitefish'scost of funds was also well above its peers at the end of 2003,2.21 compared to 1.76. Tom DeWitt, CEO of the $505 million StateFarm Illinois FCU, based in Bloomington, Illinois, said the focusof State Farm's attention has been on savings ever since it openedits doors in 1936. Like the other two CEO's, State Farm's cost offunds is significantly above that of its peers, reflecting thebetter interest rates that the credit union tries to offer.However, unlike the other two, State Farm's ratio of return onaverage assets sharply lagged its peers, coming in .53, compared tothe peer ROA of 1.09. “That is primarily due to the conservativenature of our investments portfolio,” DeWitt said, “in addition, asa single sponsor credit union that still gets a subsidy from oursponsor, our costs are significantly lower than our peer group.”The NCUA's data showed that State Farm Illinois' ratio of costs togross income stood at 3.14 when the peer average was 48.41. -

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