WASHINGTON (12/23/15)--Credit unions saw an uptick in consumer loans in 2015, according to CUNA Chief Policy Officer Bill Hampel, putting them in prime position to lend as consumer confidence begins to rise.
Speaking on CUBroadcast this week, Hampel discussed how increased auto lending is bringing in new credit union members, and how credit unions can take advantage of a recovering economy.
“With the economy doing better and the unemployment rate getting close to full employment, consumers should be willing to take on new debt in the next few years, and credit unions should make the most of it while they can,” Hampel said, adding that the hike in purchases such as automobiles should be on the rise for the next two to three years.
Car sales from 2008 to 2012 were roughly 20 million less than what they would have been with no recession, Hampel pointed out. Automobile sales in 2015 climbed, absorbing some of that pent-up demand from the recession years.
“A lot of people lost their jobs during the recession, but most of us didn’t,” he said. “But those who kept their jobs were left thinking ‘we’re next,’ and tended to postpone major purchases that we could get away with postponing.
“Now car sales are running close to 18 million at annual rate, absorbing some of that pent-up demand for postponed purchases.”
Car sales benefit credit unions, Hampel said, both through the members that come along through indirect programs, which can add new members, and because it represents an important portfolio diversification.
“Auto lending is really good for credit unions,” Hampel said, adding that it’s beneficial for credit union balance sheets to be diversifying back into consumer loans in addition to mortgage loans.
However, he did note that credit union growth continues to outpace population growth, which is a good sign for the movement.
“So far this year we’ve had membership growth of almost 4%, last year we had membership growth of 3%, the year before that 2.5%,” Hampel said. “This is when the population is growing at 0.7% per year. Even if you’re not a mathematician, you can see that we’re picking up more of a share of the population.”
Hampel also discussed the interest rate environment, and though the interview was recorded before the federal funds rate was raised, Hampel predicted the Federal Open Market Committee would raise the rates, and would continue to do so gradually in 2016.
“Last time the Fed started raising short-term interest rates was back in 2004. And once they did it, every meeting after that they raised them by a quarter percent. We feel pretty confident that because they waited so long, because they’re still leery about things, because consumers aren’t going gangbusters yet, they’ll probably do it every other meeting,” he said. “They have eight meetings per year, so a year from now, it’s likely the Fed funds rate will be 1.25%, not 2.25%, which is what it would have been in they followed the precedent from 2004.”
He also predicted that long-term interest rates would drift up gradually, but not as fast as short-term.