Credit Unions Are Subpar on Subprime

By Sarah Snell Cooke, Principal, Cooke Consulting Solutions

Slightly more than 11% of all credit union loan dollars went to nonprime borrowers, according to Ser Tech, a credit union lending technology firm. In fact, recent Equifax data show that credit union portfolios are strikingly similar to bank portfolios when it comes to the credit scores of the consumers they are serving.

Mike Covert, chairman of Ser Tech, explained that his company looked at more than eight million member-credit files across 298 credit unions that participated in Ser Tech pre-screens, and tallied the loans opened within three months of the offer. Here are the results by aggregate loan amounts financed.

Further, Covert added:

·       30% of Ser Tech customers are using risk based pricing based on score to determine their loan offers.

·       87% of Ser Tech customers make loans to members with scores below 650.

·       45% of Ser Tech customers make loans to members with scores of 600 or below.

“There are big opportunities for credit unions to reach the consumers,” Mitchell, Stankovic & Associates CEO Susan Mitchell said, “that are not getting their loans from traditional sources, thus paying sky-high interest rates. Ser Tech announced a relationship with Balance recently. Might there be a way for more credit unions to build upon these credit union alliances to serve members who are getting ripped off by the payday lenders, and in some cases, the dealers?“

Still, when reviewing the loan origination balances for all lenders, credit unions look remarkably similar to banks, possibly calling into question their not-for-profit status and adherence to credit union principles.


Kathryn Davis—CEO of BALANCE, and financial education company and former credit union executive—said she was surprised to see credit unions’ lending in the 560-619 band even as wide as it is. “I’m disappointed to see that credit unions basically look like banks in who they are lending to,” she commented. “I think you likely would find CDFIs and community banks in poorer communities doing those loans, but there are some shocking stats on banking access in poorer zips, which is why the check cashers and payday loans pick up so much business because there aren’t a lot of options…The other places I see picking up the subprime business after payday lenders are the title loan places and the pawn shops. After the pawn shops, it goes to the neighborhood loan shark.”

Davis added that credit unions could work even lower down the credit score bands, but “are not even working with that audience as they might have been turned down before or don’t think the credit union is an option for them, so it could be an outreach issue.”