Automated, Off-Balance Sheet Lending Can Reach More Members in Need

By Sarah Snell Cooke, Principal, Cooke Consulting Solutions

Some credit unions are getting creative in trying to serve more underserved consumers and those with low or no FICO scores, despite regulatory pressures, financial risk and the extra time it takes. They have the will but are having difficulty finding the way.

Take the $2.7 billion Affinity FCU’s case, for example. The credit union has 147,000 members, and CEO John Fenton would like to double that, “but there’s a lot to handle manually, so we’re looking for systems.”


Affinity FCU CEO John Fenton and Mitchell, Stankovic & Associates CEO Susan Mitchell share a laugh during the 2017 Underground Collision.

The credit union is low-income designated, and partnered a couple years ago through CDFI to fund loans for low-income housing and uses a third party to offer members counseling. Affinity then offloads those loans to a mortgage CUSO so it can continue making loans.

“We need to find ways to accelerate and make that commitment for people, especially for their borrowing needs,” Fenton explained, “so what else do we need to look at?” Knowing who’s borrowing from you and the classic three Cs of credit help, but we need to also make it simpler for credit unions to be able to do.

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In addition, the regulators are not keen on credit unions lending to anyone with less than a 650 FICO. How do we work around it? “We should think about it. That’s what we’re in business for!” Fenton said. Credit unions can look at things like utilities, rent, exclude medical debts, and use identity theft checks to support their underwriting, but again, it’s all very manual right now.

Working with banks can help, too, according to Fenton, who added they’ll pay big bucks for the CRA credit. Credit unions are exempt by law from the Community Reinvestment Act, because of their mission. As a bonus, Fenton advised credit unions engaged in these arrangements should also maintain the servicing income.

“Our mission is to improve people’s financial lives, but if we’re only serving 750 [credit scores], are we really doing it?”—John Fenton

But if credit unions are also facing increasing difficulties from their primary regulator inhibiting service to underserved consumers, it could invite a banker onslaught on Capitol Hill that puts credit unions on the congressional radar. Given the current Republican-dominated make up, it’s unlikely but those same bankers are also heavy-hitting congressional campaign contributors.

Fenton pointed to companies like Uber and Lending Club, which simply facilitate transactions. They’re just a service and a platform. Can a credit union business partner develop something similar?

We need to do something about the situation to continue and expand credit unions’ differentiation from other financial services providers. “Our mission is to improve people’s financial lives,” Fenton stated, “but if we’re only serving 750 [credit scores], are we really doing it?”