TAMPA, Fla.—The first federally insured CU to introduce credit card loan participations says the program is working and will expand in 2016.
In the spring of 2014, Suncoast CU formally introduced Credit Cards for Members, which gives credit unions a simple way to launch their own credit card programs, and at the same time, boost SCU credit card outstandings.
The $5.9-billion Suncoast is projecting it will double the size of its 200,000-account, $600-million credit card portfolio within the next five to seven years.
Jon Rasmussen, VP of card services, said the goal of helping smaller credit unions get started with cards is generating interest. Within less than a year of offering Credit Cards for Members, two CUs have signed on to offer full-service credit card services. “This has resulted in 1,500 accounts and $2.5 million in outstandings,” he said.
The $120-million PBC CU in West Palm Beach, Fla., and the $63-million SMW FCU in Lino Lakes, Minn., are the first to enroll. Partner credit unions are issued their own BINs and participate out a large percentage of their portfolio.
The program’s initial target is credit unions $100 million in assets up to $2 billion. Within two years smaller credit unions will be able to enroll. “By 2016, we plan to develop a program to offer similar services to credit union with $100 million in assets and less,” said Rasmussen.
Suncoast shoulders the workload: handling card application and issuance, underwriting, payments processing, member service, marketing, collections and compliance. In exchange SCU receives a revenue split—typically 80%/20%, or 90%/10%—with Suncoast retaining 80% to 90% of the outstanding loan balances.
How much of the portfolio the participating credit union keeps drives the CU’s costs for the program. If the CU retains 20% of their portfolio they share in 20% of their expenses, and keep 20% of the revenue, Rasmussen explained.
Suncoast launched the program following research that indicated more than 3,000 credit unions don’t offer their own credit cards—some choosing a third-party processor, some selling their portfolios and others simply not in the credit card market.
Rasmussen explained that many CUs want to get back into credit cards because they are lucrative today, but don’t have the infrastructure. And, he said, they like the idea of working with a credit union.
“The credit unions we are working with sold their portfolios years ago and didn’t believe their members were provided the service they deserved,” said Rasmussen. “So we've gone in and offered their members full-service: fraud protection, electronic reports, reward points or cash back, no annual fees, low rates, no hidden fees, no punitive fees and no punitive interest rates to name a few.
Suncoast’s card offers a competitive 8.9% APR fixed rate for the best paper.
“We feel good about the work we are doing because it embodies our credit union philosophy and allows us to work with other credit unions,” added Rasmussen.
Asked if he thought NCUA’s next iteration of its risk-based capital rule would impact the program, Rasmussen said he did not think so.
“There is no special treatment for credit card participation loans under NCUA’s original RBC proposal, and because we did not form a separate CUSO to run these transactions, the risk weights under the proposed rule are the same as the rest of our unsecured credit card portfolio at 75%,” he said. “We are even more encouraged now that the NCUA announced a complete overhaul of the RBC proposal with a new comment period.”