Are we coming out of a recession? During the past six months, credit unions have seen record growth in deposits and loans. This is good news but there are also a tremendous number of regulatory changes pending that may affect income for credit unions. Not to mention, increased deposits require continued momentum on the loan origination front.
It's clear that many changes are coming for financial institutions with the increased consumer protection legislation in the works. Some of these changes will directly affect important revenue streams and your return on assets. Proposed regulations include changes in credit card programs, payday lending, and overdraft protection/courtesy pay. If the proposed legislation is passed it will almost certainly impact earnings for all financial institutions.
It looks like much of this legislation will pass in some form. What should credit unions do in the face of this possible income impact? There are some interesting opportunities in lending to consider and act upon quickly. The first is looking for new lending markets or channels.
One promising area is the merchant lending market. Many communities have businesses that would like to offer financing to customers at the point of sale. Take for example those that provide fencing, home improvement, appliances, furniture, lifestyle loans and other retail items that often require a loan. Credit unions now have the ability to provide web-based, automated financing at the point of sale providing the merchant with a benefit to immediately secure a new customer (without a visit to the branch), the customer gets an immediate decision, and the credit union gains a new member and potential deposit relationship. In addition, by participating in the merchant's revenue generation, additional deposit and loan opportunities for the merchant may present themselves.
Read a case study about TDECU (Texas Dow Employee Credit Union) and their merchant lending program.
Another area of opportunity is in near-prime lending. There is a key credit tier from 650-700 being all but ignored right now. This high yield lending opportunity warrants another look. Many people in this group can be good payers and are looking for loans and long-term relationships. Credit unions are increasingly focusing on their loan origination systems and automation processes to more fully automate clear-cut loans (the slam dunks) and to use underwriter resources to more closely evaluate the loans that require more analysis and may produce higher yields. These opportunities are important to uncover in this economic environment and can pay great dividends.
While we can certainly get caught up in the implications of these eminent changes, smart credit unions will look forward to opportunities and focus on making their staff more efficient and productive than ever.
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