AUBURN, Calif. – Sometimes even after taking steps to grow a credit card portfolio they are not enough to prevent the sale of the portfolio, according to the CEOs of two CUs which recently made sales.
The $60 million Placer Community Credit Union, headquartered in Auburn, Texas and the $41 million Liberty Alliance FCU, headquartered in Lexington, Kentucky, each sold their card portfolios to Elan Financial Services, the card servicing subsidiary of U.S. Bancorp, according to Kessler Group, the broker that facilitated the sale.
Credit union executives reported that their CUs had made use of different promotional strategies offered by their card transaction processor, Fidelity National Information Services, but were not able to grow the portfolios enough to justify keeping them.
At Placer, part of the problem was that the CU's significantly older membership did not generally use cards or carry many balances, according to CEO Gerald Yerby.
"We offer a platinum card, gold card, classic card and business card," Yerby explained, "and we have rewards on the platinum card and cash back rewards on the gold card. But despite being able to grow the portfolio from 1.6 billion in outstanding to 3.2 billion over five years, it just wasn't keeping up with the costs."
Yerby explained that the CU's older members were just not at the time of life when they were inclined to carry many large balances on their credit cards, and even though they made purchases with the cards, the purchases were generally not of a size or regularity to generate significant interchange income.
Yerby added that he had some experience selling card portfolios previously at banking jobs he had in the past and that helped him better understand the potential outsourcing the portfolio to a third-party provider could offer.
Liberty, by contrast, had trouble competing with large issuers for the card business of its white-collar members and didn't find much of a market for cards among its blue-collar members worried about job losses from outsourcing, according to CEO Randy Fox.
"Our membership is divided pretty much between blue-collar and white-collar members," Fox explained. "Our white-collar members can be choosy and they are getting two or three offers a week for new cards with lower interest rates on them. While our blue-collar members are working to get and keep themselves out of as much debt as possible since they are worried their jobs might be headed overseas."
Fox said that the portfolio's yield had fallen to just above 3% and that with the addition of the fraud concerns and rising costs from CUNA Mutual's additional card security measures, it just didn't make any sense to keep issuing them.
"When you are putting a whole lot of money into cards and drawing 3%," he said, "you could put that money into offering your members new and used car loans or personal loans or something else that is going to draw 6% or 7%," he added.
Fox said that the CU had put a rewards program into place on their cards and that it had helped, but in the end it couldn't raise the yield enough to make the difference.
Both CEOs acknowledged that the details of the card programs were going to change under Elan. Placer members, in particular, will see their fixed-rate cards moved to the potentially significantly more expensive variable rates, but Yerby said he had been able to negotiate no change in the rates for a year after the portfolio's transfer.
-dmorrison@cutimes.com
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