CHARLOTTE, N.C.-The need to boost revenue may be prompting more credit unions to buy back their card portfolios, and Bank of America's announcement last week that it will discontinue issuing cards for credit unions will only speed that process, two card analysts suggested.
Bank of America for years has purchased card portfolios from credit unions and banks via FIA Card Services, its card-issuing arm. Early this year the bank began moving slowly to exit its agent-bank relationships, telling those with FIA contracts that their agreements would not be renewed after they expired. According to one source who requested anonymity, BofA in late September gave about 50 institutions still under contract with FIA a short Nov. 1 deadline to make a decision on the direction of their portfolio.
The source indicated that BofA provided three options: to remain with BofA but with reduced service levels and with the credit union or bank cardholder getting a BofA credit card after the current contract expired; allow remaining institutions to make an offer for their portfolio that included a $1-million de-conversion fee; or sign a new agent relationship with the Philadelphia-based Elan Financial Services.
Bank of America spokesperson Betty Reiss made it clear to Credit Union Journal that BofA has for some time sought to exit the agent-bank role.
"We decided earlier this year that the agent-bank relationship was not core to our goal of building deep relationships and we began the process of exiting those relationships," said Reiss. "We're doing this through a combination of portfolio sales and contract expirations. In many cases, our agent-bank card business has served predominantly single-service card customers with limited opportunity for Bank of America to do more business with them."
Another source suggested to Credit Union Journal that many of the credit unions affected by BofA's decision are moving to bring portfolios back in-house, although a number are also planning to move over to the new agent bank to which BofA sells the remainder of its FIA portfolio, due in part to the short period of time to make the decision.
Think Carefully About Decision
In St. Petersburg, Fla., PSCU Financial Services believes going to another agent-bank relationship is not the best decision for the credit union and its cardholders.
"Credit unions need to think long and hard about it, as this for some could be the third owner of their portfolio," said Chris Joy, director in PSCU's strategic portfolio consulting group. "With any agent-bank relationship the quality of service is a question. The credit union does not have control over the credit decision, and members are subjected to bank-style pricing, such as hair-trigger late fees. And this is just another disruption for their members, they may have new due dates . . ."
James Guild, chief sales officer, said PSCU has seen growing interest from credit unions that have had agent-bank relationships that are now looking to take back their portfolios. That's being driven by lagging loan numbers elsewhere and the fact credit cards have become one of the best performing assets to drive ROA. "I don't think this is just BofA, it is much more than that. Credit unions have been rethinking the value of the agent-bank relationship and this will just accelerate the trend."
Guild pointed out that PSCU has been contacted by several of the credit unions that have been using BofA. Jeff Russell, senior advisor for The Members Group in Des Moines, Iowa, confirmed that TMG has received similar inquiries. But Russell, while seeing the BofA move as forcing some credit unions to make a quick decision on the future of their credit card portfolio, said in the end the BofA decision is just a "blip" in terms of any impact the bank's move will have on the credit union industry.
"In the end these credit unions will figure out the best place for their members to land," Russell said.
Keeping It Inside Credit Unions
Stan Hollen, president and CEO of CO-OP Financial Services in Rancho Cucamonga, Calif., likes what the BofA decision will do for credit unions.
"CO-OP Financial Services is an advocate of credit union-owned products and keeping member solutions within the movement," said Hollen. "It's very important for credit unions to offer a credit union-branded card. That's why CO-OP introduced CO-OP Credit in 2010. For credit unions that want to get back into credit card processing after their Bank of America/FIA Card Services portfolio management expires, we offer credit unions the simplicity and efficiencies of a bundled debit and internal credit processing solution."
