Embrace New Lending Strategies

How does your CU plan to rebuild its loan portfolio this year?

April 11, 2011

Credit union loan balances fell 1% in 2010—the first decline in 30 years.

If your credit union experienced this decline, what’s it doing to rebuild in 2011? And how will the recent regulatory changes, the expanding economy, and compe­titive issues affect credit union lending operations this year? To answer these questions, the CUNA Lending Council convened a panel session at the recent CUNA Governmental Affairs Conference in Washington, D.C.

Here are some lending strategies that came out of that session:

•  Regulatory issues: The regulatory environment has changed in three big ways: creation of the Consumer Financial Protection Bureau, revision of the Home Mortgage Disclosure Act, and the addition of new mortgage regulations

Because credit unions already have consumer-friendly practices in place, they’ll have fewer changes to implement than some competitors. Credit unions will, however, need to use additional resources to update systems to comply with new regulations.

The flood of new regulations makes this an ideal time to discuss the credit union difference with your members. Because many regulations increase transparency, it will be easier to highlight the benefits of credit union loans and deposits over banks’ offerings.

For a summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act, visit cuna.org.

•  Economic issues: The U.S. economy is expected to grow a modest 3.5% this year, which should help the labor market gradually heal. More jobs and income will boost home sales from their recent lows. Modest economic expansion, rising stock prices, lower payroll taxes, and lower debt burdens will increase consumer confidence and households’ willingness to borrow.

Moreover, after two years of postponing durable goods expenditures on cars and appliances, members have significant pent-up demand and will unleash that spending this year. Vehicle sales (autos and light trucks) should average about 13.1 million units in 2011, up from 11.5 million last year.

The recession created a lot of potential borrowers with subprime credit scores. Credit unions with disciplined underwriting and subprime pricing will have great opportunities to increase their loan portfolios.

It’s imperative for credit unions to focus on price, convenience, and availability of funds to serve consumers who need credit repair products. Many members still aren’t in the mood to take on additional debt. So credit unions can gain by getting more of existing members’ business.

Credit unions must innovate and automate electronic delivery of lending products to win this business. And they should develop outbound-calling groups to follow up on approved unfunded loans and preapproved products.

Lending bright spots for the coming months include new- and used-vehicle loans, private student loans, and purchase money mortgages. And if credit unions are more aggressive, they can attract more purchase money mortgages. To do this, improve service delivery, and then tell members and realtors that your credit union is ready to close when they are. This proactive approach can be an important edge when interest rates and fees are comparable.


•  Competitive issues: Competitors will offer more “plain vanilla” products. Banks will be forced to change some of their abusive and opaque lending practices. And technology—a core competency—will play an increasing role in attracting and retaining members.

Technology will help credit union staff transition from being “order takers” to becoming professionals in a “sales culture.” Products and services will focus on enhancing members’ financial well-being.

The future of the credit union movement depends on how effectively we capture the younger generation. These members expect access and functionality anytime, any place, on whatever personal electronic device they’re using at that moment.

If credit unions stay true to their member-driven mission of providing quality financial products at low cost to improve members’ lives, they’ll continue to effectively compete in the lending arena.

STEVE RICK is CUNA’s senior economist. Contact him at 608-231-4285.