Four Industry Giants Form New Card Portfolio Player; New Bank Will Serve as Monoline Issuer for CUs

SALT LAKE CITY, Utah – In a move which should make the market for credit union card portfolios even more competitive, four credit union industry institutions – CUNA Mutual Group, Corporate One FCU, Certegy and Card Services for Credit Unions – have joined forces to offer credit unions still yet another possible buyer for their card assets. The new corporation, in which all four will play a role and have invested, is called the Union Financial Services Corporation. Its CEO is Wallace Jensen, who has over 20 years in card management experience for regulated financial institutions, the new firm said. If everything goes according to plan, the new corporation will become essentially a monoline card issuing bank whose card business is exclusively credit union-based. Monoline card issuers are banks whose sole business is credit cards. The structure the group has chosen is that of an industrial loan corporation, which its CEO, Wally Jensen, described as a “non-bank bank.” When it’s fully in business, probably in July or August, it will be chartered by the state of Utah and take deposits which are insured by the FDIC. Such non-bank banks have a history of being formed by commercial enterprises who needed to have access to banking resources but which did not want to own a bank. Being able to charter the ILC in Utah, where the rules are more favorable, was the reason UFSC was headquartered in Salt Lake City, Jensen explained. UFSC will buy credit union card portfolios and enter into agent relationships with those credit unions as well as help credit unions who have not been able to do so to start credit card programs. The company said that it will be initially capitalized at $10 million, a level which will enable it to purchase $100 million in card receivables; a milestone which it expects to reach in about three years. The effort resembles a similar plan already put into place by the Illinois Credit Union League in which the League’s Service Corp buys, manages and starts credit card portfolios in agent relationships with issuing credit unions and offers credit unions the opportunity to invest in the portfolios. However, the USFC effort is clearly on a significantly larger scale. UFSC’s management team is relatively unknown both inside and outside the credit union industry. Jensen’s card management experience includes time with Citibank and other big bank names, but the firm has not revealed the specific card experience of John Haymond, its senior vice president and chief lending officer, nor that of Jeffery Whicker, another senior vice president and the firm’s chief financial officer. The board of directors for the corporation includes Jensen, Robert Hackney, President of CSCU, Patrick McGrady, CEO of the $182 million Toledo Area Community Credit Union and William Bailey, CEO of Mt. Olympus Waters, a local bottled water company. McGrady, who also sits on the CSCU board, will bring the perspective of the broader credit union industry, the company said, and Bailey will bring previous experience managing an ILC and connections with the local business and financial community, as well as expertise in the corporations Community Reinvestment Act requirements. However, the ultimate control of the corporation will still reside with the four investing firms, each of whom is a partner in the corporation’s parent company, Union Charter Holding, LLC, Jensen added. All Four Are Investors Although each of the four institutions have invested in the project, CSCU, the association of credit unions which process their card transactions with Certegy, narrowly holds a majority interest in the firm, with CUNA Mutual and Certegy sharing equal shares and Corporate One taking a somewhat smaller position. In addition to a portion of the initial $10 million investment, each of the four brings a different set of specialties to the operation. Although in many ways the smallest of the partners, CSCU brings its vital relationship with both Visa and MasterCard. CSCU will sponsor UFSC into both MasterCard and Visa associations. This will help the new firm both reduce its fees when joining the card associations as well as enable it to offer multiple card platforms right from the beginning. The new firm expects to start with at least a Platinum Card platform as well as a Rewards Card and a Small Business Commercial Card platform, all of which would have been very difficult without CSCU sponsorship. CUNA Mutual brings its investment expertise and expects to play a key role later when the new firm begins to structure a way for credit unions and others to invest in vehicles backed by the card receivables. Certegy brings its card processing experience as well as the ability to service the card accounts which the new corporation will buy. Bob Bream, senior vice president with Certegy and former CEO of United Airline Employees CU said that his firm would initially service the accounts through the firm’s existing call centers but would be open to opening others in the future if needed. Corporate One brings its investment along with its relationships with both over 740 credit unions nationwide as well as a relationship with Primary Financial, a CUSO which the new firm hopes will serve as one of its deposit brokers in the future. The four stressed that they also bring their networks of experience and relationships to the new firm. These, combined with their understanding of what credit unions deep concerns might be about selling their portfolios, will give the new firm a head start when it starts actually purchasing portfolios. Overall, most of the already established players in the card portfolio market expressed a positive attitude about the new firm. William Koo, CEO of Asset Exchange, a leading independent card broker, said his firm has long sought to bring credit unions more card portfolio options and added that Asset Exchange welcomes the addition of another buyer. Keith Floen, manager with InfiCorp, another leading buyer of card portfolios, also welcomed the competition. “We have always focused on what we do and have been willing to let the other guys focus on what they do,” he said. Both he and Jim Donahue, spokesman for MBNA, noted that this represented the final capitulation among those in the industry who used to argue that credit unions shouldn’t sell their card portfolios to the reality that some are going to sell. “I guess they have decided to keep some of the money at home,” Floen observed. Glen Lee, senior vice president, with TNB Card Services, the card servicing arm of credit union owned Town North Bank, welcomed the new firm as further validation of his firm’s believe that credit unions who feel they need to sell their card portfolios are looking for a very credit union friendly alternative for doing so. “I view this as a validation of what we have been saying for a while,” said Lee whose firm, along with CSCU, used to argue strenuously that credit unions should not sell their card portfolios. -