A new credit union-owned credit card bank for credit unions has been put on hold until at least the beginning of next year while organizers try to resolve regulatory questions over ownership of the new venture.
An application for deposit insurance for Union Financial Services Corp., a Utah-chartered industrial loan company, was returned earlier this month by the FDIC because of questions over ownership by one of the participating entities, Card Services For CUs, according to Wallace Jensen, president of the fledgling operation.
The FDIC wanted to know whether CSCU, which would be one of four equal owners, and thus a "controlling" owner under Securities and Exchange Commission rules, is organized as a Credit Union Service Organization (CUSO), Jensen said. If so, the FDIC would not approve the application because "CUSOs are prohibited by law from having a controlling interest in a financial institution," he said.
So the FDIC wants a determination from NCUA on whether CSCU qualifies as a CUSO, which bills itself as an independently owned trade association, and not a CUSO. Jensen was hoping to obtain a determination form NCUA late last week.
The dispute will not kill the project, Jensen insisted, because if NCUA rules that CSCU is, in fact, a CUSO, "We'll just change our ownership structure," he said. "The market needs this solution, so we're ready to adopt another (ownership) structure."
But the issue will delay the unveiling of the new credit card bank, which was originally slated for introduction this quarter, until at least the first quarter of next year, said Jensen. "There's a lot of interest in this and we anticipate coming out of the shoot real fast, when we get this thing nailed down," he stated.
The proposed credit card-bank would be owned jointly by CSCU, CUNA Mutual Group, Corporate One FCU and Certegy Inc. It would buy credit union card portfolios, a market currently dominated by MBNA, InfiCorp. and TNB Card Services, then manage the portfolios and sell shares in the pools of receivables created back to credit unions, creating a whole new secondary market for credit union card receivables.
The plans for the bank are similar to what CUNA Mutual is currently doing for member business loans, which it is buying, then selling shares back to credit unions in the pools, or mutual funds, thus keeping the credit union assets within the credit union community. CUNA Mutual has similar plans to buy other types of CU assets, creating a new secondary market for credit union receivables, while retaining the assets within the credit union movement.
The operation has been capitalized with $10 million and has acquired the ILC charter, old offices and technology infrastructure of Sears Commercial Card operations, which was sold to Citibank for $3.5 billion last year in one of the biggest card deals ever.
