Credit Unions Beginning to Resume Issuing Credit Cards

According to a New Hampshire-based portfolio-consulting company, approximately 400 credit unions sold off their credit card portfolios since 2004. Now, 25 of them are seeking to reenter the business of issuing credit cards to consumers, and that number is growing. The portfolio-sales contracts of many credit unions are reaching their expiration date, which avails them of an opportunity to re-evaluate the credit card aspect of their business.

"Banks sold earlier than credit unions, so there`s less of a bubble but more of a flow," says Tim Kolk, as reported by Collections & Credit Risk. Kolk is the owner of TRK Advisors, the afore-referenced consulting firm.

The reasons behind the interest shown by credit unions to reenter the credit card issuing realm are many and include the desire to gain better control over customer and member relationships as well at the potential for attractive earnings. According to Kolk, "It has a good bottom line."

In fact, some banks might be considering reentering the business of credit card issuance as one way to attempt to offset the loss in revenue that has come as a result of the Durbin Amendment mandated by the Federal Reserve Board which essentially halved debit card interchange.

The renewed interest shown by financial institutions toward re-involving themselves in the issuing of credit cards is positively impacting card processors. Some card processers have been experiencing negative effects from the consolidation of issuers.

By contrast, Bank of America recently decided to discontinue issuing credit cards on behalf of credit unions. FIA Card Services, the issuing arm of BOA has, until now, engaged in the purchase of credit card portfolios from credit unions and maintaining the issuance of credit cards in the name of the credit union. Apparently, BOA has determined that being a card issuing agent is no longer integral to its core business.

"In many cases, our financial-institution business has served predominantly single-service card customers with limited opportunity for Bank of America to do more business with them," said BOA spokesperson Betty Reiss, according to Collections & Credit Risk.

Bank of America has notified the 40 to 50 credit unions for which they currently issue credit cards that no contracts will be renewed upon expiration.

Doug Nicholas

Doug Nicholas, a financial consultant by profession with a Masters degree in International Business from Brown University, is also an ardent writer. Though he has a full time job at one of the companies listed on Wall Street, he does manage to squeeze in time to follow his passion. He puts his ideas to words in his articles related to finance and business.