CU Magazine: How do you lend to members with less-than-stellar credit without assuming too much risk?
Vann: We leave loan decisions in the branches.We put a pulse to every loan. Our systems can support some auto decisioning and we have some filters to help the lender. But we don’t take the pulse out of the loan.
When you’re dealing with people that have lower credit scores, you have to build relationships. You have to understand why their scores are what they are.
Many lenders have consolidated or centralized their loan approval process. They’re looking for consistency and risk avoidance. But I think the industry relies too much on credit scores and auto decisioning [when making loan decisions].
Many peoples’ credit scores are dropping not because of their behavior but because credit card companies are reducing their credit lines. That drives consumers’ credit scores down—and they didn’t do anything.
That has happened across the board as the credit card companies reel in their risk. The people they’re reeling in the risk on are probably those who need the line most.
As their credit scores decline, these people start falling out of credit “buckets” [tiers]. And who’s catching them?
We look at the member’s credit score but it’s not the determining factor. We look at members’ real ability [to repay] and their relationship with us. Then we look at credit score, then collateral. That’s how we build every application.
We have more than 40 lenders in our branches who make loan decisions within certain guidelines. Every branch has an anchor lender that will cover almost every loan request that hits the desk that particular day.
Our loan-to-share ratio is over 90% and 50% of our offerings are C and D credit. That’s where we make our money.
Next: Widening credit 'buckets'