Even though Elan Financial Services picked up roughly 140,000 credit card accounts in one transaction from TNB Card Services, the U.S. Bancorp subsidiary may have to convince the 168 credit unions to keep issuing with them.
“They have to introduce themselves because I don't think this has ever happened before,” explained Willie Koo, CEO of Asset Exchange, a credit union card brokerage and consultancy owned by Fidelity National Information Services. “I believe this is entirely new ground, and there are no real precedents in cards,” he said, though he said there may be similar situations involving other sorts of loans.
According to Koo and other brokers, in the history of credit union agent issuing agreements, there has never been an instance of the agent issuing partner selling a card portfolio while the agent agreement is still in place and valid.
There have been past situations where credit unions have declined to renew agent issue agreements in order to go with other agent-issuing partners. There have also been instances where credit unions have let agent-issuing agreements expire in order to start their own card programs again.
Agent-issuing card agreements cover when a credit union sells its card portfolio but allows the buyer to continue issuing cards to its members in the credit union's name, usually for some part of the interchange or finance income.
Both Koo and Tim Kolk, a managing partner at card brokerage and consultancy Brookwood Capital, stressed that they did not know how all of TNB's agent-issued deals have been structured. But they explained card account sales and agent-issuing agreements are almost always two separate contracts that might reference each other but generally remain separate and require separate signatures.
This means that even though Elan has purchased 140,000 credit card accounts that are issued in the names of 168 different credit unions, the banking subsidiary has not necessarily purchased the relationships with the credit unions that underlie that issuance and may need to sell some credit unions on using Elan as a card-issuing partner.
This could be a particularly challenging task. Even though Elan has pointed out that it has relationships with roughly 10% of all credit unions, it also faces many credit unions that chose TNB as an agent-issuing partner specifically because it was not a conventional bank.
TNB Card Services is the card processing arm of Town North Bank, a credit union-owned bank that's run as a CUSO.
In fact, a number of CU executives whose portfolios were sold to Elan said, at the time their credit union sold their portfolio it did so because TNB was owned by credit unions.
“We were so happy with having found a credit union-owned option for the portfolio that we took less of a premium for it than we would have liked,” said one credit union CEO who would only speak on background about the sale since his CU is currently evaluating its options regarding Elan. “So it was a real shock for us to read about the sale to Elan.”
A number of other credit union executives contacted by Credit Union Times for this article declined to speak on the record, explaining that they had either not yet seen documents related to the sale or had entered into negotiations with Elan.
“In general, we are receiving many positive comments about the Elan program from our new partners,” wrote Elan spokesman Teri Charest in an e-mail. “A few key highlights that are resonating with these new partners are an expanded product set the credit unions can now offer to their members, including the Visa Signature card and in-branch marketing programs and external acquisition marketing campaigns Elan offers our partners at no cost to them.”
Charest also pointed to the relationship Elan has with the $3.2 billion Desert Schools Federal Credit Union. Desert Schools sold its portfolio initially to MBNA, now FIA Card Services, a subsidiary of Bank of America and then, in 2007, allowed that agent-issuing agreement to expire. It then moved to Elan.
Earlier in May, Desert Schools and Elan announced that the credit union and bank had seen the Desert Schools card portfolio grow to more than $100 million in balances.
But Ray Ponteri, CEO of the $253 million El Paso Employees Federal Credit Union said he has already told Elan that the credit union would not sign an addendum to its original TNB agent-issuing agreement.
“I have read the [original] agreement and nothing in there says anything about it being assignable,” Ponteri said. He emphasized that he did not have anything against Elan, but that the terms outlined in the addendum were not a good deal for El Paso Employees' members.
Among the difficulties with the addendum, Ponteri explained, were changes to the revenue-sharing agreement the credit union originally made with TNB in 2002 and switching El Paso Employees' members from MasterCard to Visa-branded cards after the CU had already switched them from Visa to MasterCard at the 2002 sale.
It's unclear how many credit unions currently issuing cards through an agent-agreement with TNB might share El Paso Employees' reservations, but card brokers said they would not be surprised if it was not most of them.
Elan declined to say how many of the 168 card portfolios were sent an addendum to their agent agreement, or how many will need them or other similar agreements, but the firm remained optimistic about the strength of the program it could offer the former TNB partner CUs.
–dmorrison@cutimes.com

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Elan Optimistic but May Need to Sell Itself Anew to Finalize TNB CU Deals

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