Constellation Federal Credit Union, Reston, Va., has always considered members’ circumstances when lending. “We do risk-based lending and look at each individual application and consider the scenario,” says Karen Moe, president/CEO. “A member could be having financial difficulties and we try to help if we can.”
Most of the $168 million asset credit union’s members are employed by the U.S. Defense Department and in-telligence agencies. “They have to keep their credit scores up to keep their clearances,” Moe says. “But their family members don’t always have great scores. We normally see a lot of A paper and then much lower-grade paper.”
Because Constellation Federal has few members with low credit scores, its two loan officers are able to take time to assess their situations. “We contact them and do everything possible to give them loans unless we see it won’t benefit them in the end,” says Moe.
Recently, a 20-year-old member—with no credit history—came to the credit union for an auto loan. “The dealer wouldn’t lend to her and her parents weren’t good co-signers, but she had an uncle with good credit who could co-sign,” Moe relates. “We worked with the family to find the best option to get a car at a good rate.”
That type of loan usually pays off, she says. “We have very low delinquency compared with our peers, largely because of our type of membership. Any delinquent borrower tends to be outside the agency.
“But we can always work something through when someone gets into trouble,” she continues. “We can lower the payments or extend the terms of the loan.”
“Our loan philosophy is very member-centric,” says W.K. (Ike) Keener Jr., president/CEO of $943 million asset Allegacy Federal Credit Union, Winston Salem, N.C.
“It starts with our mission to help members make smart financial choices,” he adds. “It’s very important to take their stories into account. People have events beyond their control—anything from a medical condition to a job loss.”
Allegacy Federal approaches lending with the notion of saying “yes.”
“Our front-line people can approve loans, but declines have to go to a committee for a second look, to make sure we’ve given the member an adequate chance,” he explains.
“Our staff feel empowered to make decisions, and our process really helps,” he says. “If someone has extenuating circumstances, employees become advocates for the member—not only the first-line but the second-line person reviewing the loan.”
The credit union had to reaffirm its approach because of the recession, because so many members were going through difficult circumstances. “It confirmed our philosophy,” Keener says.
When one member with a low credit score couldn’t pay rent and faced eviction, credit union staff listened to the reason and made a loan to prevent it. Another member needed a car to get to work and keep his job. The credit union approved an auto loan. “If we hadn’t stepped in, we would have put the member in a situation where he couldn’t pay his bills,” says Keener.
“You’ll always have a higher delinquency rate when dealing with people who have financial difficulties,” he continues. “But it helps if you take great care in structuring the loans. Have adequate collateral and schedule payments at times they’ll have ability to pay, for instance.”
When you lend under those circumstances, you build member loyalty. “They’ll often pay you before their other creditors,” he says. “In my 36 years in business, I haven’t seen a time when it was more critical to do this than now. Otherwise you’re failing to help members in need.”