Landmark Card Report Draws Praise from All Quarters

ARLINGTON, Va. – A landmark report on credit union credit card management and options has drawn praise from all quarters of what is often an otherwise contentious and competitive industry. The report, prepared by Washington D.C.-based Callahan and Associates, reflected responses from a survey of 1,300 credit unions which issue cards and have assets of $50 million or more. Charlene Ledbetter, a research analyst with Callahan, said that growing interest among credit unions had driven the study, which Ledbetter reported was Callahan’s first of its kind. “We had heard from a few credit unions that were thinking about selling their portfolios. As you know, the credit card marketplace is very competitive right now and many CUs have been approached to sell,” Ledbetter said. “On the other hand, we could see from the call report data that some credit card portfolios were doing very well.” What all sectors of the credit union card industry praised was the study’s ability to provide meaningful data while straddling the contentious line between advocates of credit unions selling their card portfolios and those who believe credit unions should keep and better manage an important relationship asset themselves. The report balances data about the industry overall, along with a mixture of different case studies of credit unions which have adopted different strategies to overcome specific common problems, including some credit unions which decided to sell their portfolios, all to MBNA. “I think the overall message of the study is that credit unions have to proactively manage their portfolios or seek to partner with a firm who can do that form them,” said Steven Fuld, Senior Vice President of Boston-based Kessler Financial Services, a noted broker of credit union’s card portfolios which is closely associated with MBNA, a Delaware-based bank which is a leader in purchasing portfolio from credit unions. While Fuld’s remark might be expected, Brian Crawford, Chief Marketing Officer for PSCU Financial Services, and a leading advocate of credit unions keeping and managing their portfolios, by and large agreed. “The overall market in cards has moved, and does move, so quickly,” Crawford said. “This report gives credit unions a clarion call to take their card management seriously. Most of the practices the report recommends to are what we recommend our clients,” he said. Karen Fry, Assistant Vice President of Marketing for Card Services for Credit Unions, the Clearwater, Florida-based association for credit unions that process their card accounts with Georgia-based Certegy. “The report really just confirms what we’ve been telling our credit unions all along. That, with a little bit of attention, their card program(s) can be successful,” Fry said. Some of the practices the report recommended are considered card basics, the industry executives agreed. For example, the study found that 45% of credit unions responding to the survey do not track the percentage of card accounts that have had at least one transaction in the past month. Tracking monthly transaction behavior can help credit unions spot inactive accounts and take action before they are closed and is the sort of practice that a credit union would have to do if it planned to manage its card portfolio to its greatest potential, the executives agreed. They also agreed with the recommendation that credit unions make one person responsible for all aspects of the credit card portfolio, which could include such diverse areas as marketing, collections, teller education and customer service. Some of the executives cited this recommendation, as important as it was, as very difficult for some credit unions to do, since it meant making someone almost a “czar” over all parts of a credit union’s business. “I think that person would almost have to be a direct report to the CEO,” said Keith Floen, managing director of Atlanta-based InfiCorp, a bank which buys credit unions card portfolios and a previous credit union card manager. “That person is going to need the power and the authority to make the changes a credit union will need to make to make its card an integral part of the credit union’s business.” Floen pointed to the shrinking levels of penetration of cardholders among credit union members as a “particularly troubling statistic” for credit unions and suggested that someone in the key role of card manager would help. He also wondered how many credit unions might be willing to make the needed changes for a loan type that might only represent 5% of their overall business. Crawford, while agreeing that he found the penetration statistic significant, thought the changes that needed to be made to reverse it would go deeper than just changing who reported to whom. “Credit unions have gotten used to very conservative loan vehicles which have very low and predictable write off’s,” he noted. “Credit cards as unsecured loans are a different product and are going to have higher write offs.” Both credit unions’ culture, and that of their regulators, would have to change to recognize the difference between auto loans or mortgages and credit cards. But he also expressed confidence in credit unions’ ability to make the needed changes. He pointed to other products in which credit unions had come to dominate, such as auto loans, as examples of loan products that credit unions had come to find very familiar and “own.” When credit unions turn their attention to a product or service, Crawford estimated, they will succeed at it. Frank Selker, CEO of Asset Exchange, the largest broker of credit union’s card portfolios that is based in Portland, Oregon said that while he found the study useful, it nonetheless could have made more of the benefit of a credit union getting as many offers as possible if they decide to sell. “We agree that selling can be a good choice, but would add that how you sell is as important as whether you sell,” Selker said. “For example, we have seen competition for a portfolio double the value of an offer relative to an unsolicited offer without competition. That kind of bump can make the difference between a sale being a bad or a good idea,” he said. He also said Asset Exchange urges credit unions to get more offers than the examples in the Callahan study. “We would increase their recommended number of offers credit unions seek from 2-3 up to 3-5. Credit unions should understand that some brokers work closely with one buyer, and those brokers aren’t a good source for competing offers.” -