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CUs Continue to Provide Credit to Members
September 18, 2006
Good article. I had an ethics professor tell me once that A and B students are usually those that conform to the rules and are afraid to take risks, that C and D students are those that make better entrepreneurs because they are taking risks and pushing the envelope. I wonder if there is a comparison that can be made between A and B students and A and B paper? Has anyone done this study? Are credit unions turning aware potential entreprenuers who might become very loyal to the credit union movement?
Great message - when someone needs a loan just because their credit union or another mainstream financial institution says no, it does not mean the person is going to stop trying to get that loan. Instead of flat rejection, looking beyond numbers and working with the member could be a great way for credit unions to grow and serve a clear need.
It's time for the experts to enlighten the credit union industry regarding the fact that the best delinquency and chargeoff rates are not the lowest ratios. That was partially true when we were single rate lenders, however, there can be no justification for risk based lending if your delinquency and charge-off ratios don't increase, (assuming you had a competitive single rate strategy in a typical A or high B score band). The science of portfolio management demands that you actually take more risk if you are going to charge higher interest rates (C & D). Guess what? More risk is riskier - and those words actually have a meaning. So, stop measuring loan risk success only by delinquency ratios and chargeoff ratios and look at your margins in each risk tier. I'd be ashamed to have the lowest delinquency and charge-off ratios in this era of "serving the underserved". There's no going back to old days. IIf you are scared to death of delinquency, you are driving your members to the wolves for their loans. Delinquency must be measured, understood, and controlled, but, no one can judge the profitability of a portfolio by looking at delinquency factors alone. Gearing a loan strategy toward low delinquency is going to put many credit unions out of business. Nationally, consumers credit proflies are becoming worse partially because of the new credit information providers who do not report psoitve payment flows, but they do report slow-pays which affect Beacon scores. How many articles dow we need to read that tell us credit scores, and debt repayment habits are deteriorating before we ask ourselves- just who are we going to lend to?
I have been in the CU industry for almost 30 years now and it has never been more competitve than it has become over the past five. Unfortunatly as much as I hear "the woes" of today's CU executives it seems that they are reluctant to act in their own favor. Especially when it comes to Non- Prime Lending. I know that the regulators don't make it any easier to venture into this market. But what happen to "people helping people" it seems more like "people helping prime people" today.
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