Focus on members; don’t scare your underwriters; create a sense of urgency; and re-think member financial education
I’m probably no different than most people when it comes to making resolutions for the new year. I have a few go-to resolutions that I recycle and perhaps develop one new idea each year. By March most of them are forgotten.
This year is different. I tried a few new ideas and wrote them down. They’re not out of sight and mind—they’re hanging from the side of my refrigerator for all to see, especially me. I also write one down every day when I get into work to make sure I eat healthier. It seems to me that credit unions could also benefit from making and keeping some resolutions this year. Here are four I think are worthy.
1. Lead With the Member
Toward the end of 2020, I was researching a few top-performing large credit unions to determine the source of their impressive non-interest income. While I could not identify all the sources that contribute to the gap between their financial results and those of my credit union, I did find a few things that I wasn’t sure I was comfortable with. All those credit unions had seemingly made product decisions that quite honestly were to the benefit of the credit union and limited the financial options of their members. Is that what got these credit unions to their multi-billion asset status? Probably not. They likely earned the trust of their members for decades based on making decisions that benefitted both the credit union and its members.
2. Don’t Scare Your Underwriters
Frankly, thanks to COVID-19, it’s a scary time to make loans. Lenders must ask themselves questions like, “Who is still employed?” and “Will this member have a job next month?” not to mention, “Will there be some ‘trickle-up’ to job losses?” The job losses we’ve seen so far have primarily come in the service industries, but more white-collar and management jobs could be impacted this year.
The other day I talked to an executive at another credit union about issues in lending. The subject of doing “autopsies” on charged-off loans and sharing the findings with underwriters came up. After 37 years in the lending business, I’ve found it’s tough to get underwriters to expand their thinking and take on more risk. It requires constant reinforcement. However, it’s easy to get lenders to tighten up by scaring them. Putting undue emphasis on loans they approved that went bad is the best way to paralyze them. We don’t do it here at Ent. Our loan review process will, when needed, analyze losses that stick out, but we don’t share the details with the underwriter. If there is a systemic issue, we’ll try to summarize how we’d adjust underwriting guidelines—but that’s it. Unless you’re trying to fix a broken portfolio, focus on the characteristics of loans you want to approve.
3. Create a Sense of Urgency
A growing portfolio of data shows the banks are catching up and surpassing credit union customer satisfaction. Much of the credit for this seems to go to the mobile capabilities the banks and their multi-billion-dollar technology budgets can produce.
While not a “big bank,” the fintech lender Figure is hoping to disrupt the home equity market by appealing to the consumer’s need for speed and providing a slick, mobile and web-only presence. Promising home equity loans in five days, a streamlined application, along with mobile or video notary services, Figure not only sees the opportunity to disrupt but is filling a void in the market as many of the big banks simply don’t want this business. While most consumers don’t necessarily need their loan closed in as little as five days, why should we operate to, well, the slowest and least demanding of our members?
To keep up with our competition, we need to create a sense of urgency with our staff and express that urgency with our members. Most of us incentivize our staff to some extent based on loan production volume. Is it time to consider an incentive-based on our speed of delivery?
4. Re-think Financial Education
When it comes to financial education, this is a curious time. The need is well-known; so many people are under-educated about their finances. Credit unions and many of the fintechs are scaling up their educational offers because of the consumer need. Thanks to the almost unlimited resources of the internet and access via our mobile devices, we have more information literally in our grasp than we could ever consume.
Yet, from my vantage point, so much of the financial advice is kind of “blah.” It’s so general and not particularly exciting. Is our collective “blah-ness” keeping people away? Or, more accurately, are we just not appealing enough to gather the attention of more consumers?
This point hit home a few weeks ago when I helped my son buy a new truck. He’s an adult, yet I don’t think he was well-prepared to understand the complexity of the process without me. I’m in the industry, but I certainly have not educated him as I’d like. The challenge, and the opportunity, was more evident that day with another young man at the dealership. He appeared to be a single father with shared parental responsibilities. A down payment even as little as our recent COVID-19 relief checks seemed to be a stretch for him. His credit? Don’t ask. His trade-in? Upside and unfortunately non-operable.
The salesman was incredibly patient, respectful and helpful. In exploring options, the possibility of a co-signer was discussed, and Grandma was there to come to the rescue. Yet Grandma, while she didn’t have bad credit, had no credit. Even after probably 45 to 50 years as an adult, she didn’t grasp why she didn’t have a credit file. “I owned a house at one time, but I sold it.” A house payment is credit, not a house. Imagine if she understood that a credit file, much like a house, does not like to be ignored and requires constant maintenance?
Most credit unions will make a feeble attempt to educate members on the steps to buying a car: “Determine your budget. Get pre-approved before shopping.” And so on. It’s all the same. It fits into a nice, neat package. It seems to maximize the number of people potentially reached yet minimizes the impact per person. I think I’d rather try to maximize the impact my educational material might have on any one person and take the chance that, regardless of the content packaging, there are people I won’t be able to reach. Lower your standards, and you lower your effectiveness. Bottom line, we have to resolve to raise the quality of our content!
When it comes to lending, the most important part of resolutions is being resolute.
Bill Vogeney is chief revenue officer but refers to himself as chief lending geek at $7.4 billion Ent Credit Union, Colorado Springs.