Even though Elan Financial Services picked up roughly 140,000credit card accounts in one transaction from TNB Card Services, theU.S. Bancorp subsidiary may have to convince the 168 credit unionsto keep issuing with them.
“They have to introduce themselves because I don't think this hasever happened before,” explained Willie Koo, CEO of Asset Exchange,a credit union card brokerage and consultancy owned by FidelityNational Information Services. “I believe this is entirely newground, and there are no real precedents in cards,” he said, thoughhe said there may be similar situations involving other sorts ofloans.
According to Koo and other brokers, in the history of credit unionagent issuing agreements, there has never been an instance of theagent issuing partner selling a card portfolio while the agentagreement is still in place and valid.
There have been past situations where credit unions have declinedto renew agent issue agreements in order to go with otheragent-issuing partners. There have also been instances where creditunions have let agent-issuing agreements expire in order to starttheir own card programs again.
Agent-issuing card agreements cover when a credit union sells itscard portfolio but allows the buyer to continue issuing cards toits members in the credit union's name, usually for some part ofthe interchange or finance income.
Both Koo and Tim Kolk, a managing partner at card brokerage andconsultancy Brookwood Capital, stressed that they did not know howall of TNB's agent-issued deals have been structured. But theyexplained card account sales and agent-issuing agreements arealmost always two separate contracts that might reference eachother but generally remain separate and require separatesignatures.
This means that even though Elan has purchased 140,000 credit cardaccounts that are issued in the names of 168 different creditunions, the banking subsidiary has not necessarily purchased therelationships with the credit unions that underlie that issuanceand may need to sell some credit unions on using Elan as acard-issuing partner.
This could be a particularly challenging task. Even though Elan haspointed out that it has relationships with roughly 10% of allcredit unions, it also faces many credit unions that chose TNB asan agent-issuing partner specifically because it was not aconventional bank.
TNB Card Services is the card processing arm of Town North Bank, acredit union-owned bank that's run as a CUSO.
In fact, a number of CU executives whose portfolios were sold toElan said, at the time their credit union sold their portfolio itdid so because TNB was owned by credit unions.
“We were so happy with having found a credit union-owned option forthe portfolio that we took less of a premium for it than we wouldhave liked,” said one credit union CEO who would only speak onbackground about the sale since his CU is currently evaluating itsoptions regarding Elan. “So it was a real shock for us to readabout the sale to Elan.”
A number of other credit union executives contacted by Credit UnionTimes for this article declined to speak on the record, explainingthat they had either not yet seen documents related to the sale orhad entered into negotiations with Elan.
“In general, we are receiving many positive comments about the Elanprogram from our new partners,” wrote Elan spokesman Teri Charestin an e-mail. “A few key highlights that are resonating with thesenew partners are an expanded product set the credit unions can nowoffer to their members, including the Visa Signature card andin-branch marketing programs and external acquisition marketingcampaigns Elan offers our partners at no cost to them.”
Charest also pointed to the relationship Elan has with the $3.2billion Desert Schools Federal Credit Union. Desert Schools soldits portfolio initially to MBNA, now FIA Card Services, asubsidiary of Bank of America and then, in 2007, allowed thatagent-issuing agreement to expire. It then moved to Elan.
Earlier in May, Desert Schools and Elan announced that the creditunion and bank had seen the Desert Schools card portfolio grow tomore than $100 million in balances.
But Ray Ponteri, CEO of the $253 million El Paso Employees FederalCredit Union said he has already told Elan that the credit unionwould not sign an addendum to its original TNB agent-issuingagreement.
“I have read the [original] agreement and nothing in there saysanything about it being assignable,” Ponteri said. He emphasizedthat he did not have anything against Elan, but that the termsoutlined in the addendum were not a good deal for El PasoEmployees' members.
Among the difficulties with the addendum, Ponteri explained, werechanges to the revenue-sharing agreement the credit unionoriginally made with TNB in 2002 and switching El Paso Employees'members from MasterCard to Visa-branded cards after the CU hadalready switched them from Visa to MasterCard at the 2002sale.
It's unclear how many credit unions currently issuing cards throughan agent-agreement with TNB might share El Paso Employees'reservations, but card brokers said they would not be surprised ifit was not most of them.
Elan declined to say how many of the 168 card portfolios were sentan addendum to their agent agreement, or how many will need them orother similar agreements, but the firm remained optimistic aboutthe strength of the program it could offer the former TNB partnerCUs.
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