Is the ‘New Normal’ Really That New?
CUs have a long history of success despite adversity.
I recently returned from a meeting where I heard a presentation on positioning credit unions to succeed under the “new normal”—an environment where regulations, compliance costs, and business challenges will continue to increase.
Consumers, the presenter explained, will be stressed with an unsteady economy, relatively high unemployment, rising interest rates, and a housing market slow to rebound. These factors will result in more competition for a bigger piece of a smaller pie.
The message wasn’t very uplifting. But in retrospect, I’ve concluded it really wasn’t all that “new” either. In the past 43 years, I’ve seen good times and bad.
But there have always been regulations, competition, fluctuating markets, unemployment, and bad loans. Some credit unions and their leaders have fallen by the wayside and others have prospered.
Those that prospered buckled down and dealt with the problems at hand. After they vented their displeasure and shared in general grousing, they determined what had to be done and made it happen. Life went on.
During hard times, some members have trouble paying their loans. Layoffs, strikes, plant closings, and firings have affected the lending business since currency was first created. Credit unions skilled at lending do manage to cope with delinquencies and put many more good loans on the books.
They experience losses, but they always lose a lot less than those that don’t adhere to strong underwriting standards. They look at a lot more than credit scores: They factor character into their lending decisions.
Competition also has always been part of business. In the early days of credit unions, nearly all loans were secured by autos, and personal loans were based on character.
Credit unions were high-touch, and they knew most of their members. Those members were loyal to their credit unions.
While members often are still loyal, credit unions have to work harder with today’s larger, more complex, and more diverse memberships to earn their trust and loyalty.
Many credit unions, for example, have nearly conceded the auto loan market to competitors. I regard
auto lending, however, as a real opportunity to grow your portfolio with shorter-term, higher-yield loans than the mortgages that now represent a very large part of credit union lending.
Try targeting current members with an auto loan recapture program to move existing loans from other lenders to the credit union. Various methods include:
- Searching credit reports of existing good borrowers to determine what loans they have, and then offering them loan refinancing at better terms; and
- Telemarketing, or launching an e-mail or mailed auto loan campaign.
Personal loans—either old-time unsecured loans or credit cards—also offer opportunities for sound growth. Personal loans generally have short terms and produce high yields. Sound underwriting practices can make these the most rewarding type of loan available.
Adding materially to a consumer loan portfolio can increase the very tight (and likely to get tighter) interest margin most credit unions face today.
With the assurance that today’s extremely low deposit rates can only go up, if you change your loan portfolio mix you can increase the average yield on assets and widen the interest margin.
Those who survive and prosper in the “new norm” will be the leaders who do what has always worked:
- Minimize complaining;
- Identify what must be done;
- Create a plan to do it; and
- Make sure it gets done.
These credit unions will be innovative and persistent in fighting for market share and making sure members always get good value.
JOHN FRANKLIN is CUNA’s executive vice president and chief operating officer. Contact him at 608-231-4266.