Just two of the 2,100 credit unions with credit card receivables of $1 million or more sold their portfolios during the first three months of this year, according to TRK Advisors, a card-portfolio consulting firm.
The Peterborough, N.H.-based firm says both sales during the quarter were small, with between $1 million and $2 million in receivables.
“The sales were so small because of several issues coming together at once, including the implications from the Credit Card Accountability, Responsibility and Disclosure Act, which have made it impossible to forecast portfolio value,” Timothy Kolk, TRK president, tells PaymentsSource, a Collections & Credit Risk sister publication. In the past, “many counted on being able to sell card programs at high values. But now that assumption has disappeared,” he explains.
One in five credit-union card programs are unprofitable, and it will take years to fix because of the Credit CARD Act, Kolk notes. “It is a very tough environment for smaller issuers right now,” he says.
Buyers are affected because of the reduced value of credit card programs and the increased risk, Kolk says. “Buyers have become more careful than ever that they are not buying someone else’s mistake and are focusing on managing existing relationships,” he says.
The card-issuing market appears to be segregating into two sections for those interested in selling, Kolk notes. The first represents issuers having trouble selling at any price because of credit problems, compliance issues or specific pricing decisions such as offering fixed-rate cards. The other involves sellers still open to sales but with the realization that purchase-price levels no longer are as high as they once were.
Because sales can take six and 12 months to complete, fewer portfolio sales will occur this year than in 2009, Kolk believe. And for the industry as a whole, “no one knows when this will turn around,” he says.
The market still is changing, and the Credit CARD Act still has another phase in August, Kolk notes. Plus “interchange legislation also is a troubling possibility for card issuers,” he adds.
And while the market eventually will recover, credit card-portfolio sales will “never be back to what we had in 2006 and prior,” Kolk says.
Credit unions sold only five card portfolios during the fourth quarter of 2009; they sold 22 portfolios all of last year, the same total as in 2008.