PORTLAND, Ore. — Asset Exchange, a leading broker of creditunion card portfolios, has publicly announced a change in policy.From now on the firm will represent the credit union looking tosell its card portfolio and not the organizations looking to buyit.

“For the longest time credit unions have been told that sellingtheir card portfolios is free,” explained William Koo, AssetExchange CEO, “because they did not pay anything as part of theprocess. But of course it's not free. The broker usually gets paidby the portfolio buyer.”

Koo said the policy move brings the brokerage firm back to acourse it had wanted to follow from the beginning, that of helpingCUs get the best deal for an asset whose value, particularly in thebeginning, many credit unions might not have appreciated orunderstood completely.

He said that the firm had begun offering to represent CUs in theportfolio sales in 2006, but had only decided to publicly announcethe policy shift when enough of the potential problems anduncertainties had been ironed out.

The change marks the latest in a series of innovations the firmhas brought to the market for CU card portfolios. The firstinnovation the firm brought to the portfolio transaction processwas the notion that it was better to have more than one buyerlooking at your portfolio and making their best deal for it. Thatwork involved the broker who would help the credit union evaluatethe portfolio, package the portfolio information and contactpotential buyers as well as arrange for evaluating the bids, allservices for which the winning buyer would eventually pay apercentage of the final price.

The fact that the buyer paid the broker always left thebrokerage firm open to concerns over whether it could reallyrepresent the credit union's interests fully since, if it advisesagainst a given deal, it might undercut or eliminate a source ofincome. Having the credit union pay the broker for its serviceseliminates that source of concern, Koo explained.

This concern is particularly sensitive in credit card portfoliosales, Koo said, because the levels of the fee or commission paidto the broker are not fixed by law or regulation, as they usuallyare in real estate transactions.

“If a real estate purchaser knows that the broker representingthe seller expects to make 6% or 7% or 5% or whatever it is on thesale, then they can figure that influence into their evaluation ofthe deal,” Koo said. “But in portfolio transactions those brokeragefees are generally not revealed.”

Of course, from the credit union's perspective, the downside ofthe new policy is that it will pay the broker for services that canbe expensive. Koo said that the firm adopted a different, lesscostly, fee structure for when it represents the credit union inthe portfolio deal. He also said that the firm would continue torepresent portfolio buyers if the credit union indicates that thisis what it wants to do.

Koo said Asset Exchange hoped that the new policy would helpfurther the cause of greater transparency in the card portfoliosales process by leading more credit unions to ask how the brokersthat are arranging the sales will be paid.

But Tim Kolk, managing partner with Brookwood Capital, anotherindependent card portfolio broker headquartered in Peterborough,N.H., indicated that Asset Exchange's change in policy only broughtthe firm into line with a policy that Brookwood has had in placefor more than five years.

“We always give the credit union the option of hiring usthemselves,” said Kolk. “Every credit union is presented thatchoice, some choose one way, some choose another. So, while aninteresting announcement, I don't think it changes anything” in theindustry overall.

Kolk said some credit unions choose to have the buyers pay forthe sale because that means the CU is not paying for it. Sometimesit's a budget issue, he said, a certain amount has been budgetedfor the sale and paying the brokerage fee would take the deal overbudget.

The bigger issue may be how portfolio buyers will react tohaving a broker represent the credit union selling a portfolio. Inthe past the former MBNA, now FIA Card Services (a division of Bankof America), would not work with credit unions that usedindependent brokers in card portfolio sales. But company executiveshave said that the firm's policy has changed and that it welcomesbroker involvement.

Elan Financial Services, another active purchaser of CU cardportfolios, said that it also welcomes the work of brokers withcredit unions.

“From our perspective it only helps us,” said Dan Roads, firstvice president with the card buyer. “We believe we make strongoffers for credit union card portfolios and a credit union having abroker who can help it understand and appreciate the offer is onlya good thing for us.” –[email protected]