DES MOINES -
Jeff Russell, a long-time executive with The Members Group, the CUSO jointly owned by the Iowa League and the Iowa Corporate CU, said they hope the venture, called TMG Financial Services, will prove attractive to credit unions as another way of keeping credit union assets within the movement.
TMG Financial will offer similar agent issuing services for credit unions as existing competitors, like credit union-owned TNB Card Services, or U.S. Bancorp's Elan Financial Services, but will differ in two major ways, according to Russell, who will head the new venture. First it will give credit union sellers a chance to acquire ownership in the venture, and second, it will offer participating credit unions an opportunity to reinvest the proceeds of the sale of the cards portfolios in a loan participation.
The market for card sales has become flooded in recent years with the participation of such bank-owned entities as InfiCorp. (First National Bank of Omaha), MBNA (owned by Bank of America) and Elan (U.S. Bancorp), as well as TNB (a unit of CU-owned Town North Bank of Dallas), and more recently, Wescom CU.
Still A Niche
But Russell said he is confident that there is still a niche for a credit union-owned alternative because all but TNB appear to have abandoned the small issuers in pursuit of large portfolios. Even TNB, which has acquired over 130 credit union portfolios over the past five years, has begun focusing on larger portfolios (last week it acquired the $8-million portfolio of Island FCU and earlier this year, TNB acquired the $16-million portfolio from A+ FCU in Austin, Texas, and the $15-million portfolio of CME FCU in Columbus, Ohio).
While more than 4,300 credit unions still operate cards programs, more than 2,000 of those have portfolios of under $10 million, leaving plenty of opportunity, according to Russell, who said he's had expressions of interest from as many as a dozen credit unions, so far. "There's always a market for people who have an innovative idea," he said.
The attraction of another credit union-owned solution is that any profits from the operations and sales of the portfolio remain in the credit union movement and members won't be subject to the kind of profit-driven rates and fees that bank-owned solutions are known for imposing. "Because we're owned by credit unions, our intent is to have a credit union rate," said Russell.
The venture has been structured as a regulated loan company, which will be licensed in all 50 states, he said. TMG plans to raise funds in a private placement of stock with CUs later this year to help capitalize the venture. TMG Financial will be a principal member of MasterCard, so will process transactions over the MasterCard network, but will also process Visa cards.
