Starting in the early 2000s, a growing list of credit unions began exploring the possible benefits of selling their credit card portfolios. According to TMGFS, the shortcomings quickly became evident for many that did sell their portfolios. This inevitably meant credit unions couldn't make judgment calls on the creditworthiness of loyal members; it also meant they had to partner with banks that were marketing comparable, competing products – frequently to the credit union's own members. Bank partners would also promise not to cross-sell, yet in some cases would encourage cardholders to make their credit card payments at competing branches. Finally, revenue the seller earned from the sale did not cover costs resulting from the loss of valuable member relationships.

TMG, a card processing and payment solutions company recently acquired by CO-OP Financial Services, created TMGFS in 2007. TMG provides services for credit unions and community banks, and TMGFS was born as a result of an increasing desire from credit unions to evaluate the sale of their portfolios with a partner that shared their people-over-profits philosophy.

"When we were started 10 years ago, there were a lot of different ways we could have structured ourselves – we could have decided to become a bank, credit union, corporate credit union," Rempe said. "What we decided to do was set ourselves up as a non-depository financial institution with a lending license in all 50 states."

One of the main reasons TMGFS decided to take this route was that it allowed credit unions to lend money back to or invest in the CUSO; it also complies with the regulation stating credit unions are permitted to lend to and invest in CUSOs. "So, we're able to take advantage of that model," Rempe added.

Rempe explained over the last 10 years, TMGFS went from having no self-issued credit card balances to being one of the 65 largest credit card issuers in the country. "We have portfolio balances of over $220 million and we've utilized that $220 million worth of credit card portfolios as collateral to borrow $220 million from credit unions," Rempe said. TMGFS is a MasterCard issuer and processes through First Data.

The CAP continues to offer credit unions a unique opportunity to work together for the common good of their organizations and the consumers they serve. The program receives support from more than 60 credit unions that contributed funds to boost the ongoing health and sustainability of more than 120,000 cardmember accounts.

"It's been a great program for us because it's allowed us to grow and serve credit unions and credit union members," Rempe said. "We've also been able to pay back a significant amount of interest income to credit unions that they would not have been able to take advantage of if we didn't exist."

When a credit union decides to enter this agent-issuing relationship, it's essentially outsourcing all of the program to TMGFS. "We acquire the asset from the credit union and then we do all of the issuing, come up with all of the products, do all of the portfolio management, underwrite and collect." He mentioned TMGFS also covers all EMV-related expenses.

It has also provided timely rollout of mobile wallets, Apple Pay, Samsung Pay and Android Pay. "All of our partners get to enjoy the benefits of us being the one who is the issuer of the card. We provide everything from soup to nuts. The credit union does not have to think about their card program at all," Rempe said.

The credit union benefits from both issuing and funding standpoints.

"From the issuing perspective, our partners have a top of the line credit card program with experienced credit card managers who are constantly reviewing the program. They don't have to allocate any resource to running it. They get revenue share. We pay them for the partnership," Rempe said.

The CAP funding kicks in every time a credit card gets used. Rempe explained, "The way we fund the balances that are outstanding is by borrowing from credit unions. Credit unions have been able to invest in a CUSO and earn a better than market rate of return."

He added, "There is no other CUSO out there doing what we're doing that I am aware of. Our biggest competitors are owned by the largest banks in the country."

TMGFS constantly evaluates credit card portfolios for sale using factors such as new payment technologies, anticipated margin compression, increased regulatory burden and the critical need to harness data analytics for a hyper-personalized cardholder experience.

The CUSO conducts its own due diligence when considering the purchase of a credit card portfolio, including market potential, quality and partner fit. The majority of the portfolio owned by TMGFS falls into the high-quality category. Accounts have reasonable credit lines and the average cardholder has a FICO score of 732.

Rempe explained credit unions, which have been partners since the inception of TMGFS, have traditionally fared better than their big bank counterparts. "Credit union credit card charge-offs, for example, are 35 to 45% of big bank charge-offs. This is directly related to strong risk management practices."

In the end, TMGFS believes when a portfolio purchase is completed, the asset must present a clean status, meaning it has no accounts more than 30 days delinquent, and no suspected fraudulent activity, pending litigation or pending bankruptcies.

The Iowa CUSO said the CAP offering presents a unique opportunity for credit unions looking for a value-centric, high-quality, sound investment, noting it provides lenders with a competitive interest rate on a loan collateralized by high-quality credit receivables.

Rempe explained even in these competitive times, credit unions have great potential to become primary financial partners for many segments of the shifting consumer marketplace. "No strangers to collaboration or innovation, credit unions have a solid foundation made up of a loyal fan base. The key to growing that foundation lies in the strength and ingenuity of the leaders in charge of selecting strong investments for a strong future," he said.

TMGFS promotes the belief that credit unions have demonstrated a proficiency in working together to push great ideas into action. From mortgage and business lending to credit card processing and marketing services, credit unions have created and invested in CUSOs that provide essential products and services to their members. CUSOs are often formed to create economies of scale and a network of business partners that share core values.

"There are so many great opportunities for credit unions out there to continue to use the CUSO model for programs they couldn't build on their own," Rempe said.