Taking Risks To Help Members
We can control how we treat members.
At Numerica Credit Union, we never stop evaluating how well we’ve completed objectives established during our board’s planning sessions.
One topic we’re discussing a lot lately is how to maintain the “relevancy” of credit unions, on a number of different levels. Specific topics that feed into that issue are strategic capital issues, the difficulty and expense involved in complying with regulations, and potential “shoes that might drop” moving forward.
Spokane, Wash., is not yet in recovery mode—unemployment is still above 10% and home prices are still falling. Most of this is beyond board and management control.
But we can control how we treat members. Management and the board decided we must be open to lending to members who’ve had various financial struggles during the past several years. We acknowledge risk. But if we adopt a totally risk-averse position we, in effect, behave no differently than many of our for-profit competitors.
Taking risks means changing the way we operate. For example, here’s a change that’s basic, but fairly complicated to make in an organization with centralized lending and 17 branches: Our goal for many years has been to automate retail lending.
We’ve invested a lot of effort and money into building a loan program smart enough to say yes, maybe, or no. Our front-line staff have become salespeople who draft loan applications and assist borrowers who have a wide range of credit scores.
In the past, loan decisions not made by the system were made by a small group of underwriters. Today, credit scores just don’t reveal enough information. Our central underwriters need to know each member’s story to distinguish which loans to approve.
A member’s story is important. Two identical credit scores might result in two different decisions. So we’re asking our branch staff to recommend approval or denial to the centralized underwriters. Branch staff now receive interview training to help in this process.
Not surprisingly, this approach works best with members who’ve done business with us for a while. That’s fine; these members deserve our help.
To better serve these members, we’re structuring direct marketing promotions to target members who can truly benefit. We offer a special rate for both collateralized and unsecured loans, and promote both to members at levels “2” and “3” (with “1” a definite approval). Members are enthusiastic about these offers and grateful for the opportunity to save money.
Have we been able to approve every loan requested? Not even close. But we’ve been able—through careful evaluation, lower payments, and restructured debt—to truly improve financial lives.
When we started bringing more at-risk loans into our portfolio, we had to work closely with the accounts-control department, and make sure the retail and collections departments work hand in hand. A high level of trust is vital.
While Numerica has provided indirect lending for years, recently our losses have been far higher than expected (similar to the experience of other lenders during the economic downturn). Losses for the subprime portion of that business, however, have actually been below projections, so we increased our subprime lending goals for 2011.
Subprime loans are granted only by experienced, specialized personnel with strong knowledge of dealer tactics—legitimate and otherwise. We generally approve loans that are fairly small ($8,000 to $15,000) and we require down payments. We watch to make sure dealers aren’t inflating prices or down payments. We charge dealers an acquisition fee that balances risk, and we require documentation of just about everything.
Collection efforts on these loans begin during the first five days of delinquency, and proceed quickly if necessary.
It has never been more important, and in some ways more difficult, to practice the credit union tradition of helping members in need. Time will tell if we’re successful. But we’ll continue to listen very closely to our members, giving them every chance at financial success.
JENNIFER LEHN is executive vice president of Numerica Credit Union, Spokane Valley, Wash., and chair of the CUNA Operations, Sales & Service Council. Contact her at 509-536-6183. For more information about CUNA Councils, visit cunacouncils.org.