You are the CEO. Let me take you back… to the boom times of 2004… low-risk real estate lending is screamin’, car lending is strong, net worth levels are high, excess funds are invested safely at the corporates… it’s CU Nirvana.
You are in a staff meeting.
The CFO says, “What are we going to do about this crummy credit card portfolio? It’s not growing at all and credit cards make up half our loan losses.”
The Chief Lender pipes up. “Yeah. All we’re getting is negative retention; the bad risk members keep our card and the other members all go to huge competitor’s cards with super rewards programs.”
The CFO holds his hands up, “Puuuhlease, don’t start with rewards programs again. They kill the card’s profitability and give us a huge unfunded liability. And if you make the points expire, our members will hate us.”
The Chief Marketer says, “Look, the whole credit card market stinks. The only way the big guys make their programs work is by catching people in fine print traps loaded with 20+% interest rates and hidden fees. We’re not big enough to make our credit cards competitive and the market is getting worse.”
The CFO smiles broadly. “How about we sell the portfolio? Some guy from Wombat Bank just called me and said we could make a ton of money welling him our card portfolio.”
Becoming Yoda-like you say to your execs, “Make it happen.”
It was a good decision… then.
A different decision may be needed now because the world has changed. Today major card issuers have crashed and are pulling back, losses on card portfolios have been huge, and CARD Act is about to massively change the playing field.
Now is the time for credit unions to consider issuing credit cards again. Most credit card portfolio sales had short waiting periods before the credit union could begin issuing its own cards again. So, even if you sold a portfolio, you may be able to start up a new program soon.
Credit unions can take the moral high ground and leverage their positive reputation in the market place. American consumers have gotten the message that all bank credit cards are issued by pillaging Vikings. (This is a classic example for these advertisers of being hoisted on their own petard.)
Simple credit cards, with member-friendly features and appropriate pricing, have new, broad appeal in the market today. This is the kind of consumer-friendly product that credit unions should be offering. Moreover, we can save our members from the credit card marauders.
And credit unions should show their members how to do the cards-with-points-switcheroo. In this switcheroo the member uses the bank card’s reward points for purchases but always pays off the full balance automatically from a credit union checking account, or from a credit union low interest rate card. The member gets both the points and low interest rates. Perfect!
John Dolan-Heitlinger was Vice President of Finance and Marketing at Eli Lilly Credit Union from 1985 to 1988, later serving as CEO of Solidarity Community Credit Union, Kokomo, IN from 1988-1991. Following 16 years as CEO of Keys Federal Credit Union, Key West, FL, from 1991-2007, he now operates a consultancy in Key West, advising credit union clients on strategic development and tactics, effective education, and metrics.