ARLINGTON, Va. – Just how essential is it to issue credit cards? Whether issued on their own or through an agent relationship with a card issuing bank, credit cards are generally considered essential items in a competitive credit union's product mix. But three credit unions with more than $500 million in assets say that their niches in their markets don't require them to issue cards, and that sometimes their members don't want them. Alan Kaufman, CEO of the $688-million Melrose Credit Union, based in Briarwood, New York, said that Melrose has not issued cards because the credit union preferred to pay better dividends and the cost of funds kept the credit unions spread too narrow to make a competitive card portfolio worthwhile. According to the NCUA, Melrose's cost of funds to average assets ratio as 2.80 as of the end of 2003, more than a full point over the 1.76 of its peers. “We really aren't looking for another way to make lots of loans,” Kaufman explained “We are already very well loaned out.” Kaufman added that his members have generally indicated more interest in the credit unions low interest rates on the auto loans and mortgages it offers, as well as the generally good rates it offers on it share accounts and certificates of deposit. He added that he is not terribly concerned about Melrose members getting credit card accounts from banks, explaining that his 18,000 member's relationships with the credit union are sufficiently strong that he didn't feel any compulsion to have a card that was going to have to fight to be the top of his members' wallets. Melrose does offer checking accounts, which carry a small interest rate, and a debit card which can give members easier access to their funds. Melrose also offers share secured personal loans than can help meet a member need for the sorts of cash that sometimes people use credit cards to obtain. The interest rates on Melrose's share secured loans are just 2% over the share interest rate. In Whitefish, Montana, Charley Abell, CEO of the $516 million, 43,000 member Whitefish Credit Union, said that the last time he had asked the 200 members attending the credit union's annual meeting about whether they wanted the credit union to issue a credit card, they had overwhelming voted no. “It was pretty unanimous,” Abell recalled. Abell unabashedly calls WhiteFish “plain vanilla” and praised the approach, which includes not issuing credit cards, for its efficiency. The credit union's payroll deduction program, which now includes 350 area employers, takes only two of Whitefish's 54 employees to run. The payroll deduction program, along with bill payer program (the credit union doesn't offer share drafts) are concessions the credit union has made to serving its members' need while still keeping a sharp eye on costs, Abell explained. “I tell our members who want a checking account that there is a bank down the street that with a small deposit would probably let them have free checking,” he explained. The bill paying accounts differ from a share draft in that the members designate the payees and there are no paper checks or drafts generated. And the accounts anchor the credit union's debit cards, which is does offer. The emphasis on keeping the credit union's mission, products and services simple has helped it earn a return on average assets of 1.61 as of the end of last year, well above his peers 1.06, according to NCUA. Like Melrose, Whitefish's cost of funds was also well above its peers at the end of 2003, 2.21 compared to 1.76. Tom DeWitt, CEO of the $505 million State Farm Illinois FCU, based in Bloomington, Illinois, said the focus of State Farm's attention has been on savings ever since it opened its doors in 1936. Like the other two CEO's, State Farm's cost of funds is significantly above that of its peers, reflecting the better interest rates that the credit union tries to offer. However, unlike the other two, State Farm's ratio of return on average assets sharply lagged its peers, coming in .53, compared to the peer ROA of 1.09. “That is primarily due to the conservative nature of our investments portfolio,” DeWitt said, “in addition, as a single sponsor credit union that still gets a subsidy from our sponsor, our costs are significantly lower than our peer group.” The NCUA's data showed that State Farm Illinois' ratio of costs to gross income stood at 3.14 when the peer average was 48.41. -

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