Credit Union Credit Card Portfolio Sell-off May Continue as Portfolios Shrink

PORTLAND, Ore. – Although 20% of credit unions managed to grow their card portfolios at a rate greater than the national average in 2002, the majority were unable to do so, according to a leading broker of credit union portfolios. The organization placed the national average for credit card portfolio growth at 8.5%. After analyzing NCUA’s data on credit union card portfolios, the Portland-based AssetExchange reported that 63% of credit union card portfolios saw their receivables decline in 2002, this is up from the 57% in 2001, the firm said. The firm also reported that the drop meant that credit union card assets now represent just 3% of the $661 billion in general credit card debt in the U.S. Two-thirds of credit union card portfolios of less than $50 million shrank, and over half of those $50 million and over also declined somewhat, the firm said. Credit union charge-offs in 2002 were about 2.2%, a roughly 12% increase over 2001 levels, the firm said. In spite of this increase, charge-off levels among credit unions remain below the card industry average of 6.1%. Few credit unions have experienced major charge-off problems, with only about 4% having card charge-off rates above 5%, the organization added. One of the credit unions to buck that downtrend was the $205-million Dupage Credit Union, based in Naperville, Illinois. The credit union, which serves Dupage county as well as a number of different educationally based select employee groups, has 35,000 members and a card penetration rate of 40%, according to Diane Shelton, senior vice president of sales and service for the institution. According to NCUA’s data, the credit union’s card portfolio grew at the rate of 14%, a rate that Shelton said was not unique to just last year. “What we started doing was making our card a core credit union product,” Shelton said. “We make sure a credit card is offered to as many of our members as will qualify,” she said. The credit union offers it with auto loans and other loans and even mortgages, she explained. Shelton added that Dupage also varied its card offerings to meet the different levels of card participation, offering a VISA Platinum card, a VISA Plus Card and what she called a “credit builder” card for members who needed to build up their credit ratings. The credit union also offers a rewards program to help keep the cards competitive, but does not use risk-based pricing other than having the three different products that represent three levels of card participation, she explained. The $160 million Synergy One Credit Union, based in Manassas, Virginia, has also managed to beat the trend using a similar approach, according to its CEO Bill White. The community chartered credit union has a 30% card penetration rate among its 26,000 members, a factor for which White credited the number of the credit union’s card offerings. Synergy offers four credit cards, a Classic Visa, a Gold Visa, a standard MasterCard and, new last year, a Platinum Visa. White attributes the portfolio’s 15% growth to the membership’s enthusiasm for the new card. “The new card has been a real performer for us,” White said, adding that the credit union was continuing to market it to its members past the initial marketing period. The credit union charges a 9.9% interest rate for the card and offers a 4.66% balance transfer rate as a marketing tool, he said. White reported that the credit union decided to offer the card after researching how to improve its card performance with its processor, PSCU Financial Services, based in St. Petersburg, Florida. “They showed us data showing how adding another card had helped the portfolios of other credit unions and we decided to try it,” he said. Sue Chrzan, spokeswoman for Card Services for Credit Unions, based in Clearwater, Florida, noted that that experience at Synergy and Dupage highlights a key question that AssetExchange’s analysis could not answer: had the credit unions whose portfolios had lost value actually tried to manage them in a way that encouraged growth? It would be a mistake, she noted, to assume that the credit unions that had experienced a drop in portfolio value had been trying to actively manage their cards and failed, she said. Chrzan pointed out that the association’s members total transactions (debit and credit) were 372,000,000 in 2002 up from 333,400,000 in 2001. Association members’ total volume was $18.9 billion in 2002 vs. $17.1 billion in 2001, she said, and that the number of members’ card accounts stood at 8.4 million in 2002, up from 7.6 million in 2001. “I would interpret those numbers to mean that our members are doing well” with their card accounts, she said. [email protected]