"This is truly a collaborative partnership. Because we aren't a bank, we don't offer products that compete with credit unions," said Jeff Russell, executive vice president of TMG Financial Services and Chief Information Officer for The Members Group.

"This type of partnership is important because even after the sale of the portfolio, credit unions rely on the credit card program for revenue and member relations. Recognizing this, we've created a number of options for the credit unions to have a stake in our program," he added.

The other qualities that will make the TMG program unique are the loan participation option and an ability to buy into the underlying CUSO, Russell said. Credit unions that wish to, will be able to participate in TMG's card portfolio loans or actually invest in the CUSO itself.

In some ways TMG's proposal sounds like the Union Financial Services effort, a previous attempt to charter a credit union-owned and managed industrial loan company to buy CU card portfolios. The UFS attempt was eventually abandoned in its original form when it ran into regulatory and political roadblocks, but continues with the input of other investors. That UFS effort also included a loan participation provision.

But Russell differentiated the TMG effort from that of UFS by noting that as a state chartered loan company and not a depository institution, it does not have deposit insurance and avoids many of the regulatory hurdles that ended up stopping UFS.

Further, because it is a loan company and not a depository institution, the company can offer the CUSO investment option, Russell explained.

"These two qualities are those which I believe make our offering unique among the different options for credit union card portfolio sales," he said.

One possible sticking point may be the NCUA. Russell acknowledged that federally chartered credit unions are not allowed to invest in other deposit taking institutions, but he maintained that federal credit unions will be able to invest in TMG Financial Services because it does not take deposits. However, he also acknowledged that the group has

not yet sought an official opinion from NCUA confirming that.

The loan participation and CUSO investments are important both for providing an important avenue for increased credit union participation and interest in its portfolio even after it is sold and for allowing TMG to tap into a broader source of capital than its other credit union based competitors.

For example, TNB Card Services made news earlier in the year through raising capital from the 36 credit unions that own the bank. Russell said that he expected TMG to raise more capital because it could draw from credit unions industry wide and not from a restricted pool.

Ongoing participation in the card portfolio is something a lot of buyers talk about, but it's generally limited to the revenue sharing provisions drawn up in the contract, Russell explained. TMG is the only card portfolio buyer which is going to offer a credit union selling its portfolio a chance to continue a part owner in that portfolio after they have sold it.

Speaking for TNB Card Services its CEO, Scott Wagner, wished TMG well but noted that TNB has a five-year head start on TMG in the card-buying field. "We got started in these five years ago and I think that experience in the purchase arena is going be hard to match," he said. Wagner also noted that TMG entry into the market is another indication of the strength of the model of having credit union based organizations in the market for portfolios.

Indeed, TMG's announcement provided an example of how the market for credit union card portfolios is heating up. Previously, competitors would not generally attack each other in the media, but Russell was quite open about relating what he said some credit union executives have said about their experience of selling their portfolios to banks.

"As more and more credit unions evaluate selling their credit card portfolios, they need an option that does not include selling to a large bank issuer," Russell said. "In fact, this is one of our motivating factors. We have worked with credit unions in the past that have sold their credit card portfolio to a large bank issuer and then have headache after headache."

One story Russell recounted, identifying the bank in question only as Brand X came from a credit union that had recently sold its portfolio. A longtime credit union member angrily called his credit union to say he "couldn't believe his credit union would do this to him." After missing a payment by a few days, the rate on his credit card was increased to the maximum allowed at the time–more than 30%. There was little the credit union could do.

Another credit union told Russell a story about the bank that purchased its portfolio and the promise the bank had made not to actively market to credit union members. The problem was that the bank call center encouraged members to drop off their payments in the bank branch.

"For continued success, credit unions need to offer competitive products and rates, and sometimes that means they have to find a partnership," Russell said. "At TMG Financial Services, our goal is to provide a product that the credit union can be proud to offer, plus be competitive in the credit card marketplace. This formula will guarantee success both for our credit union partners and for us."

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