NAPERVILLE, Ill. – The ICUL Service Corporation (ISC), the Illinois Credit Union League's subsidiary CUSO, has acquired two credit unions' credit card portfolios. ISC would not identify the credit unions that made the sale by name, but identified them as $100 million institutions on the East Coast and in the South. The credit unions will transfer their portfolios to the CUSO in early November, said George Fiegle, ISC Vice President. The sale included 3,300 accounts representing about $3 million total. "They were good buys for us to use to get our feet wet," Fiegle said. Both institutions process their cards with Certegy, Fiegle added. The CUSO announced in early June a plan under which it would buy credit unions' card portfolios with money invested for that purpose from other credit unions that might or might not have card programs of their own. The two credit unions that have currently signed on are the first to sell their portfolios to the CUSO, but another credit union is in the pipeline, according to Fiegle. Fiegle described the arrangement as a "win/win" for both the credit unions entering into the agent relationship and those seeking to invest in the ongoing credit card market without making additional investments in their portfolios. The credit unions selling the portfolios are able to get an "aggressive" bid for them Fiegle noted, and it keeps them in a relationship where they can feel confident there will be no cross-selling of other products. It would also be possible for a credit union which sold the portfolio to buy it back more easily if it wished, though Fiegle said the price of the buy-back might be higher than the sale proceeds since the CUSO plans to improve the portfolio while holding it. "We fully plan to grow these portfolios," he said. Fiegle said in Illinois there was a real supply and demand situation. He said there were a lot of credit unions that wanted to sell their portfolios, yet also a lot of supportive credit unions that had liquidity to invest in them. The CUSO will likely increase cardholders' credit lines and offer them additional types of cards such as gold and platinum cards, said Fiegle. Bank portfolio purchasers have used both strategies to increase card usage in their former credit union card portfolios. He explained the CUSO offered "aggressive" bids for the portfolios because it had the cash to do so thanks to loans investing institutions had offered for the effort. The loan terms are for two years with a one-year commitment of funds and they can be rolled over if the investing credit union wishes. The loans earn what Fiegle called a "base rate" which is the Federal Reserve's fund rate plus 50 basis points. The loans also earn one half of the profits, which include all interchange and interest that the cards produce. Fiegle said the current low interest rate environment has helped spark interest among credit unions about making the credit card loans, which he likened to loan participations, though they are not formal participations. "These are definitely loans to the CUSO," he said. As long as credit unions continue to be willing to invest in the credit card market with this vehicle, Fiegle predicted that the CUSO would continue to make strong bids to credit unions that want to sell their card accounts. The ISC will also make its first mailings to the members of the "four or five" credit unions that are participating in the pilot run of its EZ launch program in November, Fiegle said. In the EZ Launch program the CUSO enters into an agent relationship with a credit union that doesn't already have a card program. The CUSO provides the credit union with a card product it can offer its members without any of the usual start-up expenses associated with starting a card program, he explained. November is the first month the CUSO will offer members of the pilot credit unions one of the CUSO-owned – but credit union branded – cards. -

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