LANSING, Mich. – Many credit unions that contemplate selling their credit card portfolios may not know how much of the deal they can negotiate or of how much power they have in the process, according to a CEO whose credit union recently completed the sale. Renee DeMarco's, $77 million Capital Community Credit Union, based in Lansing Michigan, completed the sale of its $5.2 million dollar card portfolio to InfiCorp on December 31st, 2002. "I don't think anything I read about the portfolio evaluation or sale process prepared me for how unique and individual a process it would turn out to be," DeMarco said. Most of what she had read about credit unions selling or holding their portfolios had expressed the issues in very black and white, philosophical terms, she reported. But she and her board found during the 18-month process of working with Asset Exchange to evaluate the portfolio, talking to potential buyers, evaluating offers and then making a decision that the overwhelming issue that drove them were particular to her credit union and its goals. "It was never about the premium," DeMarco said, although she would not reveal the premium Capital Community got for its portfolio. "We were driven by what we could do for our members with this deal and how selling the portfolio could help us achieve our strategic goals." FOM Expansion One of the biggest of those goals concerned the field of membership expansion that the state-chartered credit union had recently completed. As a result of the expansion the credit union went from a FOM of roughly 220,000, based in five townships near Lansing, to a FOM of roughly 550,000 based in a three-county area, DeMarco reported. The credit union didn't believe it had the resources it would need to adequately market its credit cards to such a broad membership expansion, Demarco explained, and it certainly didn't have the resources to use its credit card offerings as a vehicle to market credit union membership. "One of the things we were able to negotiate is that when the buyer markets our credit cards to the new potential members, the envelope will have information in it about our credit union and offering membership in our credit union," DeMarco said. "So, even if they don't want the credit card, they may still be interested in the credit union membership." Demarco explained that the relatively large numbers of credit unions in Michigan meant that credit unions are fairly well known in the state and that the familiarity would make it more likely that the credit card offers, with the membership information, would be opened. Essentially, working with Inficorp gave us a marketing vehicle for our credit union that we could not have had otherwise, she pointed out. The credit union was also drawn to selling by the numbers of additional cards, services and interest rates that Inficorp would be able to offer their card holders and members who didn't have cards yet. "Every so often I, or someone on my staff would get a call from a member who was really torn," DeMarco said. "They would tell me how much they wanted to be loyal but that they wanted to participate in some rewards program or have their limit increased. Of course we couldn't offer the rewards they wanted and we were very cautious about increasing card limits because of the losses we were experiencing through bankruptcy," she said. Reviewing the portfolio offers made them understand how entering into an agent relationship could change that, she explained. Once Inficorp takes over the portfolio, DeMarco said she expected the issuer to increase credit card limits, as well as lower the interest rates on the credit union's Platinum and Classic cards. She also explained that the long sale process had given the credit union a lot of time to get comfortable with the levels of customer service that the bidding institutions were offering once they bought the portfolio. "We could definitely tell the Inficorp representatives were comfortable with credit union culture, " she said, " in ways some of the others were not." Some of the other bidders, even those owned by credit unions, had referred to cardholders not as members but as customers, DeMarco reported. Everything Can be Negotiated If there were one thing about the process that most surprised her, DeMarco said, it was how much of the deal can be negotiated. For example, the credit union was able to negotiate the revenue streams it would make from the deal and structure the premium in a way that helped insulate it from interest rate losses it might experience. For example, DeMarco admitted the credit union would take some losses from replacing Platinum credit card loans of 8.8% with auto loans at 4.0%, but she also pointed out that the credit union had lost up to $170,000 per year in recent years to credit card losses. "We had our portfolio analyzed by a card consultant that other area credit unions had used and after we factored in all the losses and everything, we found the portfolio was only marginally profitable," she said. She said that the credit union had been a member of Card Services for Credit Unions and had processed with Certegy, but that she had never thought the association or the processor would have had the resources that the credit union needed to make its card portfolio a bigger part of the credit union's strategies. "The bottom line," DeMarco said, "is that this process cannot be looked at in only a black and white or philosophical way. For some credit unions keeping their card portfolio is going to be the strategy that best serves their goals. But others may find their best course is selling." [email protected]