Iowa League Applies To Purchase Arizona Bank

DES MOINES, Iowa – The Iowa CU League, planning for the expected consolidation of the corporate credit union system, has applied to federal banking regulators to acquire an Arizona-based bank that would provide its credit unions with access to the Federal Reserve’s payment system and provide other powers.
 
The acquisition of $16-million CreditCard National Bank, based in Tucson, would facilitate the League’s expansion into credit card processing through its The Members Group affiliate and would provide a broader scope of investment and lending opportunities than a corporate credit union, the league said in an application filed with the Federal Reserve Bank of Chicago and obtained by Credit Union Journal.
 
There is precedent for credit unions owning a bank. Texas’ credit unions, for example, own Town North Bank, a Dallas institution that buys and manages credit union card portfolios. But several other credit union card-bank projects have failed to materialize in recent years as the main vehicle, industrial loan companies, have been questioned by regulators and lawmakers.
 
"This is an alternative way of providing some credit card processing and looking to the future," said Steven Johnson, a Minneapolis attorney representing the league on the deal. "They’re [the league is] looking ahead, seeing potential changes with the credit union, credit card and corporate credit union systems."
 
In its application, the Iowa League said it expects corporate credit union reform to include consolidation of the corporates, including Iowa Corporate Central CU, one of the healthiest but also smallest corporates. The Iowa corporate still is strongly capitalized and is the only one of 27 corporates that is not participating in NCUA’s Share Guarantee Program.
 
"It is widely believed that the process of reforming the corporate credit union network will result in a reduced number of corporate credit unions with higher cost structures and more limited investment opportunities," the application said. "In such an environment, natural person credit unions of all sizes seeking the services provided by corporate credit unions will face increased costs. Moreover, the impact is likely to be most profound on small- to mid-sized credit unions as the remaining service providers focus on the more profitable customer relationships with larger credit unions."
 
Due to its relatively small size, Iowa Corporate will likely find it necessary “to liquidate or merge into a larger corporate credit union in the anticipated coming environment," the application said. In that case, Iowa credit unions "would likely suffer a significant diminution in the value of their accumulated capital and lose the ability to control the quality and price of provided services."
 
Among the services eyed is the investment in credit card portfolios that the league’s TMG affiliate has been acquiring from credit unions for at least the last two years. But the application makes it clear a much broader array of products and services, more like a corporate credit union, is planned. For example, the League would use the bank to promote services to the underserved it has launched through another affiliate, called Coopera Consulting LLC, according to the application.