SALT LAKE CITY — Union Financial Services, the organization, which tried to get a start as a credit union-owned industrial loan corporation formed to purchase credit union credit card portfolios, has instead applied to become a bank with ties to the credit union industry that will purchase credit union card portfolios.
The organization has filed an application with the FDIC to become a state chartered bank that will be able to purchase credit union card portfolios. Once the application is approved, the bank, which will be capitalized to $30 million according to Wally Jensen, the organization's CEO, it will follow the same business plan it would have followed had it been allowed to become an ILC.
The ILC effort floundered on two regulatory problems, which were distinct but related, according to sources close to both the Union Financial effort and a similar attempt led by the $3.5 billion Wescom Credit Union. First, before the FDIC would approve the application to charter and insure the ILC, the banking regulator asked that NCUA sign off on what the credit unions were trying to do and the NCUA was reluctant to do that. Second, the whole topic of the industrial loan charter became steadily hotter as major retail firms, such as Wal-Mart, began to seek ILC charters and this slowed the credit union effort even further.
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But Jensen stressed that Union Financial was confident that this move enabled it to move past the regulatory and political frustrations. "Everything we heard from the regulators prior was favorable about our business plan," Jensen said. "The problems they had were with our organizational structure and political questions.
"Nothing about our business plan has changed," Jensen said, adding that Marathon Asset Management is investing in the bank's business plan. "We don't expect Marathon to have any problems with those portfolios we are buying or how we move forward," Jensen said.
But ironically it's unclear if CUs might not have a problem with the new structure.
Before the ILC effort got hung up in the regulatory difficulties a number of CUs had expressed enthusiasm for having another CU-owned purchaser of credit union card portfolios in the market. Now it's unclear whether there will be the same enthusiasm for an effort that might look like just another banking player in the market.
But Jensen stressed that Union planned on keeping its relationships with the three organizations that were going to be its original owners and that the business plan would still keep the elements of allowing credit unions to purchase securities based on the credit card portfolios through CUNA Mutual, so that credit union investment in the purchased portfolios will still occur.
"In fact," Jensen said, "one of the things we have found is that the new, higher, level of capitalization will allow us more freedom than we would have had previously," Jensen said. "The new organizational structure is going to make us an even stronger asset to the credit union industry overall," he added. –[email protected]
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