MADISON, Wis. – Last week's announcement that the $3 billion Wescom Credit Union and PSCU Financial Services have joined forces to purchase an Industrial Loan Corporation to facilitate the purchase of credit union credit card portfolios drew attention to a similar effort four established institutions in the credit union industry mounted last year. In February 2005, CUNA Mutual Group, Certegy, Corporate One FCU and Card Services for Credit Unions, the association of credit unions that process their card transactions with Certegy, announced that they had joined forces to form an entity that will buy and manage credit union-issued credit card portfolios. But just about a year after the announcement the new organization, which will be called Union Financial Services, still awaits approval from the NCUA, the last regulator that some organizers say needs to sign off on the deal. On paper the two efforts appear almost identical. In both cases, credit unions are part of partnerships that, should they be approved, will own ILCs. ILC's are organizations which have some bank powers but which are not banks and do not face some bank regulations. The two organizing efforts differ along a couple of crucial lines. First, the Wescom/PSCU group is using a CUSO to purchase an ILC which is the parent of an existing $500 million FDIC-insured bank called Silvergate. By contrast, the CUNA Mutual/Certegy effort is seeking to form the Union Financial Services ILC. The existing bank already has FDIC insurance and the new ILC has to be approved for it. Second, while federally insured, Wescom is state chartered but Corporate One is an FCU. This means that when, as part of its processing their application for federal insurance, FDIC had to turn to NCUA for an opinion about whether a federally chartered, federally insured credit union is allowed to own an ILC – that is a question the agency has yet to answer. In the case of the Wescom/PSCU effort, it seems unlikely to ever come up since Silvergate is already insured. "We understand that this is the last piece of the puzzle," said Kevin Thompson a vice president with CUNA Mutual, of the Union Financial effort. Thompson expects it will move forward quickly should NCUA give an affirmative response. For its part, NCUA spokesman Nick Owen said only that the agency "continues open dialogue with all parties involved and looks forward to a resolution in the near future." ILCs have been under fire from consumer groups in the past over the fact that non-bank corporations, such as Wal-Mart (see related story, page 4) or other retailers, could own them and gain the powers of banking without any of the corresponding regulation, but Thompson said CUNA Mutual did not understand any of those concerns to be a holdup in this case. Many in the credit union industry have found the pace of NCUA's decision making in this case confusing since they may have assumed that there is a precedent for federally chartered and insured credit unions owning banks (no credit union currently owns an ILC). But an examination of the other industry examples reveals that what organizers of both efforts are seeking to do is substantially unprecedented in the current industry. For example, the $488 million Town North Bank, headquartered in Dallas, has at least 22 credit union owners and has been owned by credit unions since the early 1970s, explained Glen Lee, a first vice president with TNB Card Services, the card processing arm of the bank which is itself a purchaser of CU credit card portfolios. But while there may have been federally chartered CU owners of Town North since then, currently all the owners are state-charted. He also noted that a purchase credit unions made 30 years ago may not provide a good precedent for what the agency might look at when evaluating a similar purchase today. Another sometimes cited example is that of the $600 million School Employees of Washington CU, headquartered in Seattle, which is often said to own the Evergreen bank, as well as at least one insurance company. But CEO Sandra Kurack said that perception is not accurate. "Everyone assumes that we own the bank and the insurance company and we really do not," Kurack explained. "We are part of eight voluntarily affiliated companies that credit union members have begun over the years and which cooperate extensively, but nobody owns anyone else and everybody reported to their own regulators." The eight organizations are the credit union, the $209 million Evergreen bank, two property and casualty insurance companies, one life insurance company, one technology company, one card processing company and one foundation. All purchase human resource and other services from the bank and voluntarily share other expenses on a pro-rated basis, Kurack explained. "I know it's complicated, believe me. I travel to business schools to lecture classes about this arrangement because it is so unique, but we really aren't a good precedent for what either partnership is trying to with the ILCs," she said. What may provide a precedent is a fight School Employees had in the 1990′s to be able to get federal insurance even though the boards of at least one of the insurance companies and the credit unions share interlocking boards of directors. Kurack said that the NCUA, under then NCUA Board Chairman Norm D'Amours, had fought the CU hard over allowing the CU to have federal insurance, which it needed because the state insurance fund was shutting down, but in the end had backed down. It's unclear whether and how the affair may eventually be settled and what the impact might be if the NCUA comes back with a negative answer. If the agency comes back with an answer that owning an ILC is not something a federally chartered credit union can do, it may forestall the Union Financial effort. If the NCUA answers that federally insured credit unions can not own an ILC, it could forestall both efforts. CUNA Mutual said that the Union Financial organizers are considering restructuring Union Financial's ownership configuration to make Corporate One no longer the controlling owner if that might help move the effort forward, but stressed that no decisions had yet been made. [email protected]