DES MOINES, Iowa-A new program, called Collateralized Advancement Program, or CAP, offers credit unions an alternative to selling off their card portfolio.
Introduced by TMG Financial Services, CAP provides competitive interest rates for investments to fund portfolio growth and additional portfolio purchases from credit unions, and each loan is backed by credit card receivables, the firm said.
"Every credit union in the country could participate in CAP, whether they want to sell their portfolio or not. This is not a pitch to sell your credit card portfolio," explained Jeff Russell, CEO of TMG Financial Services. "Even those who choose not to sell or those who have sold in the past can still help keep these valuable card relationships in the industry while also earning an attractive yield by participating in the CAP offering."
Structured As A Loan
The CAP offering is structured as a loan to a CUSO, with a one-year advance commitment by the credit union, funded periodically based on TMG's portfolio acquisitions. It has a fixed interest rate, semi-annual interest payments, and credit and fraud losses are assumed by TMG. Russell said the investment advantages include: high asset quality, highly competitive return, allowance for investor diversification, card receivables spread across the country and portfolios managed by season professionals.
So far, 24 credit unions are currently participating in this program, which began December 2008. TMG Financial Services has been buying credit union card portfolios since 2007.
Response Has Been Good
"The response has been good," Russell noted. "We find many credit unions who have been interested in it both due to yield and collaboration. Today we are paying 4.25% on a two-year loan. The second reason is collaboration, which is really the nature of the credit union industry."
In a time of crisis, there's also opportunity, Russell said.
"We're finding a lot of credit unions really want to capitalize on the opportunity," he said. "We have many credit unions who have outstanding deposit growth. In other areas, we have credit unions who want to sell their portfolios. When we go and buy portfolios from a credit union, we do not take deposits from members. We're a lending financial institution. The way we get our money by borrowing money from credit unions. It is a loan to a CUSO. We believe that credit unions should be looking at opportunities in credit union lending. This is a great opportunity for credit unions."
To get the word out about CAP, TMG has been offering a variety of webinars. Russell also spends a great deal of time traveling, talking about CAP to groups and individuals.
