Corporate Corner: Moving from a Bridge Corp to a New Provider
June 4, 2010
November 1, 2010
Corporate Corner is a series of articles written by the Washington Credit Union League that will examine various aspects of the corporate credit union crisis and the NCUA’s plans to resolve the issue and stabilize the industry. The first article will take a look at the bridge corporations and what credit unions should expect as they switch servicing functions from the bridge corporations to new service providers.
On October 05, 2010, the NCUA announced the creation of two bridge corporate credit unions. The two new bridge corporate credit unions assumed the operation of US Central Federal Corporate Credit Union and Western Corporate Federal Credit Union. The overriding principles of the bridge corporates are continuing operations, preserving fiscal prudence, and ensuring the least cost to credit unions consistent with sound public policy. In short, the bridge corporates are designed to ensure that natural person credit unions do not see any interruption in service for critical functions such as item and payment processing. The corporate credit unions will operate for a targeted 24 months to allow natural person credit unions to transition to alternative service providers.
NCUA asks for credit unions to stay the course and not immediately sever their relationships with their bridge corporate credit union while their existing contracts are in place. Credit union management should be aware that the bridge corporate credit unions will be closed down by the NCUA within two years, and should start making plans for this eventuality by examining the options for changing their relationships they have for processing services. There are four main options available as alternatives to the existing bridge corporate credit union. First, your credit union may switch services to one of the other corporate credit unions that is still strong after the crisis. The second option is switching services to an outside vendor such as FiServe or FIS. The third option is for members of the bridge corporate credit union to form a CUSO to purchase the operations of the bridge corporate and operate the CUSO in tandem with another financial institution. The final option is for existing members of bridge corporate credit union to charter a new corporate credit union for the purpose of purchasing and assuming the assets and deposits of the bridge corporate credit union.
Each of the options that are available for a credit union has its own risks and benefits. Thorough examination should be completed before any decision is finalized. No matter what the decision is, the clock is ticking and credit unions will need to find a different service provider than their existing bridge corporate credit union.
One of the first question credit unions should ask is, “What will happen to our routing transit number when we switch from a bridge corporate?” The good news is that for most natural person credit unions, the switch from a bridge corporate should be similar to current process for switching to another service provider for your current item processing. If the credit union has its own routing transit number, the credit union should not have to change its number. But, the credit union may have to change routing transit numbers if it is using a “payable through” routing arrangement. The specifics will need to be worked out with your service provider.
Credit unions should also ask of their potential new service provider, “What kind of switch kit and assistance will you be providing us?” Organizations that already have a switch process and successful history of converting credit unions to their operations will make the process easier for any potential new switch. Check the resources that they have available for you. What is their support? Remember, they could be doing a lot of conversions in the near future, so what are they offering you. And as always, get it in writing with performance clauses.
Ask for references. It is always a good practice to talk with people who are using the system that you are thinking of switching to. Just remember, any potential new relationship will only provide you with their happy customers as a reference. When talking with the reference, ask about the conversion process, any servicing issues, support, and how things are made right when they go wrong.