Lending eight ball reveals all

The latest credit union finance trend report is out, and by all appearances it appears the lack of loan growth is a thing of the past and we can all find our happy place.

If so, this will be my shortest column yet.

The problem is that while loan growth surged to an eye-popping 5.9% during the second quarter, it’s still behind the normal 7% growth rate.

To make matters even more difficult, growth has been concentrated heavily in mortgages. If your credit union focuses primarily on those, your glass is quite full.

If your credit union does more auto lending, your glass is quite empty. And if your credit union still finances taxi medallions, your water may well be poisoned.

Current trends, as they say, don’t predict the future. In fact, only my trusty Magic Eight Ball Prognosticator can predict the future.

Let’s see what it says about these loan sectors:

▶ Indirect auto lending. Ah, the bread and butter of the credit union lending landscape. Unfortunately, coronavirus and supply chain issues have made this fiscal culinary treat land with the butter side down in the mud. We’ll still eat it, of course, because we have to.

“Will used-auto lending volumes return soon?” Outlook not good.

“Is that because of supply chain issues, the concentration of used car dealers, or the move to electric cars?” Yes.

▶ Mortgage lending. If this business line was an elementary school play, it would be the bright, shiny kid who hogs the limelight before accidentally flubbing a line and running off the stage, crying uncontrollably. 

Low mortgage rates coupled with tight inventory and high building costs sent prices through the roof (pun intended).

“Will the mortgage boom continue?” Reply hazy; try again.

“Will there be more houses for sale?” It is certain.

“Will rates remain low?” Don’t count on it.

So, this boom will eventually, like tulips in Denmark, go bust?” Without a doubt.

▶ Credit cards. After a significant decline, credit card balances rose from the dead—not unlike Britney Spears’ career. That said, credit cards are still down significantly from their pre-pandemic highs, and consumer sentiment—especially among younger people—tends to avoid what they see as “crack in the shape of a plastic card.”

“Will consumers start to use credit cards again?” Cannot predict now.

“Will people travel again?” Yes.

“Will people eat out again?” Yes.

“Will people purchase 74-inch LCD-X TVs that can show a clogged pore on Tom Brady’s nose at the next Super Bowl?” You may rely on it.

“They just won’t use a credit card?” My sources say no.

▶ Business lending. Along with new-car loans, business lending was one of two categories that declined through the second quarter. With office buildings half full due to remote work, restaurants doing much of their business through takeout or delivery, and other issues driven by the pandemic, business lending has been sporadic. 

Some credit unions are doing well while others drew back.

The problem is determining what changes have occurred which may be permanent versus those that will be temporary. 

“Are remote workers a thing now?” As I see it, yes.

“Will commercial default rates increase?” Better not tell you now.

“What’s the forecast for multi-family and other forms of housing?” Outlook good.

▶ Embedded financing, commonly known as “buy now pay later,” which large merchants are rolling out with backing from large banks in an unholy alliance.

Typically small-dollar loans, these programs require both simplicity and availability at the point of purchase. Hence the growth of companies like Affirm, which offers “pay $500 now or make five payments of $125 each!” for the math challenged. Most rates start at 18% or more.

“Really? We’re back to layaway?” Signs point to yes.

“So, we’ll need to educate members about the risks involved in this and offer consumer-friendly alternatives.” Without a doubt.

JAMES COLLINS is president/CEO at O Bee Credit Union, Tumwater, Wash.