Meshey explained that Elan's strong push for the CU's agent relationship has played a significant role in switching and praised in particular the stronger rewards options that Elan offered.

“They have a cash back rewards card which rivals anything put out by Discover, for example,” Meshey said.

He also noted that the while Desert Schools garnered notice for being one of the first CUs to begin offering the American Express card through its relationship with FIA, in the end only roughly 2,000 members, out of the CU's roughly 330,000 members, chose to get the card.

“It's not an insignificant number,” he said, “but the card was never so popular that it made a big difference in our decision making,” he added.

In taking this step, Desert Schools steps out in front of one of the newest card issuing trends, organizations with agent agreements changing their card issuers.

It is not an insignificant decision for the CU or the card issuer.

Since Desert Schools no longer owns the card accounts, they remain with FIA and will have to be re-branded at some point this year, Meshey explained. That means that between 30,000 and 50,000 Desert School members are going to have to make a decision between keeping the cards issued through FIA or going with a new “official” Desert Schools card, one that carries the Desert Schools brand, that Elan will issue.

Meshey explained that such a large range of members may face the decision because while there may be 50,000 card accounts on record, it is difficult to know exactly how many of those card accounts are active–and the CU wants as many of those active cardholders as possible to come with it to Elan. “We admit this will be a [marketing] challenge,” Meshey said, “we have already had to field calls from members about what is going on. We have had to be a little careful and walk on eggshells about how we answered those calls but, now that we are past Jan. 1, we expect that to be easier.” The credit union and FIA were bound by legal agreements that expired on Jan. 1.

Meshey said Desert Schools expects the majority of their members to transfer their balances from the FIA issued cards to the ones Elan issues once the CU explains that the Elan card is the new “official” Desert Schools card. He said Elan had also put into place a strong balance transfer program as a further inducement to make the switch, though he also admitted that there might be members who decline. “That was a risk we decided we needed to take to make this move,” he added.

Meshey declined to discuss the specifics of the deal, which gave the CU a better profit margin from an Elan portfolio than it had from FIA, though he admitted that getting a better deal had been one of the credit union's goals. However, he also stressed that the bottom line goal had been choosing the issuer that Desert Schools believed would give its members the best value.

FIA will have to reissue cards without the Desert Schools brand this year, Meshey said. He doesn't yet know the brand of the reissued cards. FIA has acknowledged the portfolio transfer, but said it could not comment on any problems the CU might have had. “From our perspective the account was growing strongly,” said Jeff Fincher, senior vice president with FIA, pointing out that the CU's card portfolio had grown from $60 million when MBNA purchased it to over $100 million now. He also made it clear that FIA remains committed to the credit union market and that the majority of the issuer's credit unions have indicated they will remain with their firm through the new contract process. “We believe strongly that we have a very strong package of cards and benefits to offer CUs who are considering partnering with us,” Fincher added. Meshey also noted that Desert Schools' switching issues has brought another issue to those surrounding card portfolio sales: consideration of what might happen further down the line if the CU wants out of the relationship.

“I definitely think that is something credit unions seeking to sell their card portfolios should think about,” he said. “Not just what is in the immediate contract but how do they get out of the relationship if it changes down the line.”

Ondine Irving, a noted card portfolio analyst, urged CUs to think carefully of future ramifications before selling their card portfolios.

Irving noted that the CU industry has an approaching wave or reauthorizations from the card portfolio sales that occurred in 2001 and 2002 with many previous CU portfolio sellers seeking to re-enter the card business.

But some of the CUs trying to start issuing again are finding out there is a clause in their contracts outlining a 6-12 month moratorium period before a credit union can even begin discussions with prospective credit card processors. Often, the credit union is prohibited from marketing to existing cardholders for a certain period of time most often up to 12 months, she noted.

“This boils down to a 12 to 18 month period in which the credit union has absolutely no type of card relationship with their members and no source of card program revenue. Yet, the agent issuing bank continues to maintain that relationship with the credit union member and receive the continued revenue from the card program,” Irving said.

Credit unions that want to sell their card portfolios need to do so with their eyes wide open, she added. –[email protected]