How hard is your credit union willing to work to serve members and make the loan?
Like so many businesspeople, I seek inspiration to improve myself and my credit union whenever possible. Several years ago, I saw a little saying on LinkedIn that has been speaking to me on an almost daily basis since: “There is no substitute for give a damn.”
It speaks to me because whether you “give a damn” is so integral to what makes credit unions the best place for consumers to do their banking. The operational tsunami we all faced with COVID-19 only reinforced the importance of showing you “give a damn” and may have actually exposed how perhaps credit unions don’t have the wide lead they once enjoyed over the banks and other financial institutions in terms of reaching out to and serving consumers. How can credit unions improve their “give a damn” quotient?
1. Continue to lead with transparent, consumer-friendly products and policies.
Credit unions, like it or not, have a reputation for being plain Jane when it comes to product design. Think of all the complex options banks tend to build into home equity lines—like the ability to lock the rate on a portion (or several) portions of the overall line—and the cash-back rewards they offer on credit cards that vary greatly based on the product purchased (gas, groceries, etc). In these cases, the design sells the product. A very attractive feature catches the consumer’s attention and differentiates the equity loan or credit card. Sometimes, these features can be fairly difficult for the consumer to understand. I think there’s an opportunity to build our business and reputation by embracing the elegance in simplicity and/or ease of use. While the iPhone is an extraordinarily complex device, it’s well-designed from a consumer standpoint; there are no iPhone instruction manuals! How can you make your financial products easier for members to understand and use?
From a policy and procedure standpoint, there are lessons to be learned from some of the Unfair, Deceptive, Abusive Acts and Practices settlements negotiated with the Consumer Financial Protection Bureau. Even before UDAAP became a concern, I never was a big fan of fine print. If your credit union has to point to a disclosure to reinforce a business practice or policy, you’re probably doing something that is consumer-unfriendly.
2. Think of every loan application as an opportunity.
I tend to look at mortgage lending as an example of the opportunity credit unions have with member interaction. With existing members, we can cement the relationship as the mortgage is a very sticky product. For marginal applicants, the application is an opportunity to explore different options. The borrower may have applied for a conventional loan, but the credit might help the member get a Federal Housing Administration loan that’s a better fit and garners an easier approval. On some applications, a loan denial with advice on how to improve creditworthiness might bring that member back in a year from now in a much better financial position. In fair lending, this is called “level of assistance.”
Every year my mortgage management team and I review our fair lending data and spend significant resources doing what’s called a matched-pair analysis. This analysis calls for pairing denied applications from borrowers in a protected class with loans we approved to non-minorities with similar loan characteristics like income, debt-to-income and loan-to-value. When we do this review, we find countless examples of applications we denied, yet our level of assistance was well documented and more importantly, well-executed. How well? We often find we eventually were able to approve the borrower for a mortgage loan. How hard are you willing to work for a loan and work for your borrowers?
3. Remember that it’s called loan ‘servicing’ for a reason.
A 37-year veteran of lending, I thought I had seen it all after helping borrowers during the financial crisis of 2008. COVID-19 certainly changed my perspective. Several things shocked me. As I mentioned in last month’s column, in early March we were dusting off the loan modification plans we developed before the financial crisis. We were ahead of the market in 2008 with innovative solutions, but they didn’t fit what our members needed in 2020 due to the speed with which the economy came to a halt; it was just not anything we were prepared for.
More importantly, how quickly banks and other financial service providers responded was also a shock. Their outreach to consumers with offers to assist came quickly and with authority. Compared to how they reacted to the financial crisis (or more to the point, didn’t react to help consumers), it’s clear to me the banks learned their lesson and want to be considered as accommodating to consumers as their poor cousins, the credit unions.
Post-financial crisis, my management team and I talked about lessons learned and how they applied to our membership. One of them was that we had always believed where our members got their mortgage or car loan was more important than their rate. We believed in our hearts that if we didn’t always offer the best rate, we could provide the best service after the loan. The financial crisis helped our members see the value in borrowing from us because we stepped up with financial assistance without the runaround many consumers experienced in working with the big banks.
We have identified two big lessons learned so far in 2020. The first is that risk is right around the corner; we just don’t always see it. As a result, we have to do a better job of not letting our guard down. More importantly, as it pertains to our members, to really live up to our promise of exceptional loan service, we have to “announce our presence with authority.” Fans of the movie Bull Durham will recognize that line from the scene when Nuke LaLoosh wants to throw a fastball to a first ball, fastball hitter. We have to bring our best plan, and we need to understand all of the circumstances we're faced with. Whether it’s in response to whatever crisis we have in 2028, or we’re helping one borrower keep his car in 2021, if we’re not the best place for our members to borrow before, during and especially after the loan, we’ll all lose.
CUES member Bill Vogeney is the chief revenue officer and self-professed lending geek at $6.7 billion Ent Credit Union Colorado Springs.