Credit Unions Must Dig Below Prime Scores for Riches


Find Purpose and Double Down

By Sarah Snell Cooke, Principal, Cooke Consulting Solutions

At the recent Underground Collision in Washington, D.C., participants seemed to be asking, ‘Even if we are willing to serve nonprime consumers, how can we in the regulatory environment?’

One CEO in attendance tried many ways to serve migrant field workers in his field of membership, but at the end of the day you can only devote so much time and resources. It’s an uphill battle with the regulators, too. “NCUA won’t fine you; they’ll shut you down,” he asserted during the table discussions.

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Credit unions are well positioned to serve the most vulnerable consumers, both philosophically and as a business. Credit unions, however, have been pushed into a corner as prime lenders, forcing many eligible members to look outside to payday and other predatory lenders. So, how can credit unions can make their mark, generate the residual public relations, word of mouth marketing, and goodwill by creating programs that serve those with credit scores of less than 600 that is also compliant and good for credit unions’ business?

Shana Richardson and Steve Stapp

“Credit unions are basically prime lenders, but our model should be inclusive of those individuals,” Shana Richardson, CEO of Ser Tech, explained during a panel.

But some credit unions are making that leap to some success. In the last year, SkyOne FCU strategically increased its in C, D, and E paper and experienced a lot of growth in that area. The credit union made a decision to serve more people and help these people get their lives back on track. It understood the risk and did it anyway.

Boulder Dam CU had most of its delinquencies from A and B paper and in large dollar amounts. The C and lower paper were smaller loans and there was a much stronger focus by the members on getting those loans paid back.

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The regulators aren’t the only hurdle to serving nonprime consumers. Becoming a deep lender takes time to earn trust as a credit union that will give money to those struggling more.

Kathryn Davis and Richardson listening to the Worst Practices panel before they take the stage.

Kathryn Davis, CEO of BALANCE Corp., pointed out that 45 million Americans have low or no credit score, and are easily swept up in a payday lending cycle. Adding, “Credit scores generally correlate with income; the best credit scores start around $50,000 in income,” so financial wiggle room in minimal. Still, Davis added that BALANCE’s debt product for those with a credit score below 600 has a 100% payback rate and helps to improve borrowers’ credit scores so they can use traditional lenders, among other things.

Unitus Community Credit Union CEO Steve Stapp is heavily involved in the World Council of Credit Unions and pointed out that issues, such as affordable housing and care for the aging, are global. We should learn and adapt from others’ work. He advocated that credit unions need to take a position of ‘why not?’

 

 

 

 

 

 

 

Sue Mitchell, of Mitchell, Stankovic & Associates highlighted the US is a world leader, so US credit unions need to be leading the charge on these issues, so the rest of the world will follow.

One reason credit unions aren’t reaching their potential on the issues of social justice and financial inclusion is they aren’t collaborating as they should. “Credit unions aren’t taking advantage of the programs available to them, like low-income credit union and Community Development Financial Institution status,” Greg Dietrich, who heads up marketing and community development at Frankenmuth Credit Union, pointed out. Frankenmuth CU leveraged a $1.4 million Community Development Financial Institution grant into $10 million worth of loans for a housing program. Dietrich added that credit unions can take advantage of low-income designation, which eliminates to member business lending cap and the prohibition on secondary capital. He concluded with a challenge for credit unions: “There’s a lot of income inequality in our country. What can we do about it?”

 
 
 
 
 
 
 
Stapp and Greg Dietrich

 Action Items for Credit Unions to Better Serve Vulnerable Consumers

  1. Leverage government, private and nonprofit foundations and grants to serve more in the community.
  2. Streamline processes within the credit union and for members.
  3. Identify and research local community organizations that align with your credit union strategically and philosophically.
  4. Determine products services you can offer that help the community organization’s population, the organization itself, and drive word-of-mouth marketing and PR for the credit union.
  5. Follow the economic data trends. For example, health care is increasing in complexity and expense and helping organizations educate on medical debt could be critical.