Look Before You Leap - Survey Finds Many CU Card Portfolio Sellers Considering A Return to Issuing

Among respondents to the latest study, a full 42% of respondents would not recommend the firms that purchased and now own their former card portfolios. Another 44% of sellers said they would recommend such firms. Of the naysayers, 28% expressed strong dissatisfaction with their partner, said Asset Exchange. In fact, this data reflected even stronger negative attitudes than the previous survey data, according to the consultancy.

These results suggested, argued Selker, that credit unions need to pay very close attention not only to the details of the sale but to what will happen in the wake of the sale and whether accountability measures are in the contracts to make sure buyers fulfill the CU's understanding of how its members will be treated after the transaction.

Overall, when credit unions that had sold their portfolios were asked if they would recommend the firm that bought the card portfolio and now issues the cards, 28% strongly disagreed, 14% disagreed, 14% remained neutral on the question, 37% agreed and 7% strongly agreed.

Of the CUs that expressed dissatisfaction with their agent issuing partners, 70% said they were dissatisfied with service levels, 50% with their partner's pricing, and 30% with their partner's products.

Somewhat controversially, the survey also found that CU card portfolio sellers' dissatisfaction grew over time. Credit unions that sold their card portfolios in 2004 or earlier were more dissatisfied with their card portfolio buyers than credit unions which sold their portfolios in 2006 or 2007, the survey found.

This runs somewhat counter to the argument from some card portfolio buyers that the survey results merely reflect early efforts to service credit union cardholders which have improved over time. Selker said he had heard that contention but that their point still did not answer the question of why a credit union that was moving from a period of poor service to presumably a period of better service would still express dissatisfaction with the buyer and not recommend it.

Selker also acknowledged that one of the survey result's weaknesses is that the firm did not feel free to reveal details about individual purchasers, even without naming them. It might be useful, for example, for CUs to know whether, as a class, firms that are owned by credit unions or CUSOs do a better job and have higher rates of satisfaction than do bank purchasers of CU card portfolios.

"We have the information on individual firms but felt that this information was just too sensitive to share on a firm-by-firm basis–and in that respect it might also not be as useful as a guide to adopting some general principles for selling a card portfolio," Selker explained.

Another weakness is that Asset Exchange is the only firm to have conducted this sort of survey. Brookwood Capital, for example is another card brokerage that specializes in brokering CU card portfolios but has never conducted a comprehensive or scientific survey.

Tim Kolk, managing partner with Brookwood, said his firm regularly gets feedback from its clients but has not surveyed them. But Kolk also said that he has been able to recognize the signs of some CUs that are likely not pleased with their decision to sell.

"What we have found is that portfolio seller satisfaction is very dependent on making sure that the process to reach that decision is carefully designed and that expectations are reasonable going in it," Kolk explained, adding that selling has pros, for example eliminating credit risk and improving product sets. Cons also exist, such as losing underwriting control, and unless the credit union has really grappled with the total package and understands both sides the decision to sell may be second guessed later.

"That is where we find the most dissatisfaction in the market- those that went quickly, took a high bid because it was high, and didn't understand the entire picture," he added.

–dmorrison@cutimes.com