ARLINGTON, Va. – Roughly 80 credit unions decided in 2003 to get out of the business of issuing credit cards directly, according to Kessler Financial Services, the affinity marketing arm of MBNA, a leading card issuing bank. But even as those institutions were choosing to end their direct credit card involvement, two other credit unions, one in New York and the other in Pennsylvania, decided to start card programs. “I know there are some credit unions that are getting out of the card business, but I am just not sure why,” said Therese Martin, CEO of the Tri-Lake Federal Credit Union in Saranac Lake, New York. The credit union was founded in 1979 to serve primarily N.Y. state employees in the lower Adirondack area of New York. Although it has only 4,000 members out of a potential 20,000, Martin said that the credit union has over 100 SEGs in the area and recently took on a five-township community charter. Townships are roughly analogous to counties in that part of New York, she explained. “We decided we wanted to try to offer cards because that was the one thing that we weren't really offering,” Martin explained. “Although we are only $13 million, we really try to be as much of a full service financial institution as we can,” she added. The real push to start a program began after the credit union started trying to serve its community charter and potential members asked whether they would be able to get a card from their new institution. The credit union contacted the New York Credit Union League for guidance and was pleased to find the League had started a program to help credit unions begin to offer cards, or to offer a greater variety of cards. Using the “Card in a Box” program, Martin reported that her credit union has been able to start offering student cards, a credit builder or secured card, a card with a travel rewards program, a card with cash back program, a card which used a point system and a card aimed at small business members. “On the one hand, when we were starting out we were a little bit uncertain because all the variety makes it a costly program to get started,” she said. “But now that it is up and running, we just love it and the membership coming to it has been slow but steady.” Since June of 2003 until the end of the year, Martin reported that roughly 100 members have opened card accounts with only minimal marketing, and that the accounts have already begun to throw off roughly $1,700 per month in income for the credit union. Martin said that Tri-Lakes has only one rate, 7.9%, on most of the cards, with a 12.5% rate on the credit builder and student cards. So far she said the credit union has not had any problems with delinquencies or late payments, though Martin said she can see how the problems of the card program could increase as the portfolio grows. “I can understand that if the program was bigger and began to take more time and resources, that might be a different thing, but so far I am really glad we started it,” Martin said. Annette Rusnock, CEO of the $51 million Lesco Employees Federal Credit Union, headquartered in Latrobe, Pennsylvania, said that Lesco began to offer a Classic VISA card after hunting around for a new way to offer loans. “We had offered new and used car auto loans,” Rusnock explained, but the zero interest financing offers had slowed that market down a lot,” she added. So the credit union, which has about 35 medium sized SEGs as well as part of the city of Latrobe as a field of membership, got advice from the Pennsylvania Credit Union Administration and began to offer the VISA Classic cards. At first, Rusnock admitted, it was pretty slow going and eight months into the program the credit union had only 45 credit card accounts. Then Rusnock attended a management training program sponsored by the league at which a participant from the program recounted the success her credit union had had in using incentives for employees to start marketing its products and services more aggressively. Armed with the information she gathered from the week-long program, Rusnock returned and put it into practice in the card program, along with a 4.99% balance transfer offer. The card program rapidly began to grow. As of mid-February 2004, the credit union had opened 408 card accounts, Rusnock reported. But with growth Rusnock admitted there have been a few challenges. Lesco's limit on its cards is $3,000 and the credit union has already found that a number of cardholders have begun to use their cards less as they have drawn closer to the card limit. “We were being cautious because we already have a $5,000 signature loan,” Rusnock said. “With the $3,000 card limit it was possible for a member to run a debt of $8,000 with us,” she said. But Rusnock also said that the credit union has begun to consider allowing members to increase their card credit limits on a case-by-case basis. Rusnock explained that her instincts led her to think the key to keeping Lesco's card on the top of its members' wallets will come with the sum of relationships the credit union members have with Lesco. If all the members know about the credit union and the only way they interact with it is through share drafts and the credit card, they might move to another card, she explained. But if the credit union works with members to help them meet their financial goals and earns their loyalty, that loyalty is going to transfer to helping keep them loyal to the card, she asserted. -

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