Credit Card Portfolio Sellers Return to Record Profits
The Credit Union of Texas ranked No. 1 in the country for largest credit card loan growth among credit unions with more than $20 million in assets as of June 30, 2014.
In many ways, the story of credit card lending at U.S. credit unions has been one of discovering how important an asset credit card loans can be.
The $1.1 billion Credit Union of Texas has been able to make the distinction. According to data analyzed by Callahan & Associates for CU Times, the Dallas-based cooperative raised credit card balances by nearly 145% between June 2013 and June 2014 and ended the period with roughly $10.4 million on the books.
The 146,000-member CU of Texas also ranked No. 1 on the list for largest credit card loan growth among credit unions with more than $20 million in assets for the period tracked. Click through to page 2 to view the list.
Elizabeth Newman, vice president of lending at the credit union, attributed the growth to the enthusiasm members expressed when CU of Texas started issuing cards again.
The cooperative had a card program for 20 years before it sold the portfolio in 2007 or 2008 due to stagnancy, she wrote in an email to CU Times.
“We considered redesigning our card offerings or selling the portfolio. We elected to sell and work with our partner and their in-house experts on a program redesign,” Newman wrote.
CU of Texas sold the portfolio to Bank of America's FIA Card Services, which was formerly known as MBNA, according to Newman. The card-issuing bank merged with Bank of America in 2006 and was later renamed FIA Card Services.
Newman said members had not necessarily expressed an opinion about the sale and subsequent agent issuing but they were unhappy that CU of Texas no longer handled the reimbursement of fees, underwriting of credit line increases and new card accounts.
The credit union had also carefully reviewed the regulatory changes that were in place since it last issued its cards and decided to return to the market with a much simpler and streamlined approach, she added.
Read more: Simplicity, lower interest rate and fee structure drive card success ...
CU of Texas previously had seven different card platforms, Newman said. Now, it has two Platinum MasterCards. One has a slightly higher interest rate and carries rewards and the other has a lower rate but minus the rewards program. The simplicity, lower interest and fee structures have made the cards successful, she noted.
Because of a non-compete agreement with Bank of America, Newman said CU of Texas has not marketed the new card to any of it is former cardholders. Still, members have shared many positive comments about the credit union's re-entry into cards, she pointed out. Newman said she did not know how many of CU of Texas’ former cardholders had taken the credit union's new card.
Credit cards loans often provide the widest interest rate spreads of any credit union loans, according to some industry experts. They also carry additional member service benefits. In addition, cards tend to have the mobility and flexibility that closed-ended loans can't match.
On the negative side, credit card lending can also require more specific knowledge and active management than other types of loans. Credit cards are more vulnerable to data breach losses compared to auto and mortgage loans and the industry is competitive on more fronts than other loan types.
The $329 million Credit Union of New Jersey in Ewing, N.J., was able to navigate around all of those parameters. The 41,000-member cooperative grew its portfolio of card balances by roughly 109% with $7.8 million on the books as of June 30, 2014.
It ranked second on CU Times’ list for largest credit card loan growth among credit unions with more than $20 million in assets for the period tracked.
CU of New Jersey issued credit cards starting in the 1990s until it sold its portfolio in 2007, according to Soma Sarker, COO. She did not identify the portfolio's buyer.
In late 2012, the credit union returned to card issuance after feeling uncomfortable about leaving the industry, she recalled. Sarker praised the national payments CUSO PSCU for its assistance with launching the program as well as ongoing card processing.
The St. Petersburg, Fla.-based PSCU also helped CU of New Jersey integrate the card program into its relationship rewards programs, which waived and lowers fees for members who did more business with or had larger loan balances with the credit union, Sarker said.
CU of New Jersey said it currently offers a low-rate Platinum card, a rewards Platinum card, a student card and a credit building, secured card.
Both credit unions that were ranked in the CU Times’ list followed a national trend within the industry. Underappreciating the benefits of credit card lending and misunderstanding their abilities to compete in the market compelled hundreds of them to sell their portfolios to card- issuing banks and continue issuing under agent-issuer arrangements with these banks, according to some experts.
These transactions usually paid credit unions a premium for its credit card balances, a percentage of the interchange from the cards’ continued use and a fee for each new card account opened. Credit unions were also able to add rewards, benefits or additional card platforms that would have been previously out of reach.
However, increased awareness of credit card value and more confidence about credit card management led many credit unions that sold their portfolios in previous years to get back into card lending again.