Not-So-Risky Business

Individualized attention to decisioning and underwriting ensures Members 1st makes solid loans for every member, every time.


Members 1st Federal Credit Union ($2.2B) in Mechanicsburg, PA, has a mix of loans in its portfolio. In addition to the bread-and-butter-of-the-industry auto loans, the credit union books a variety of real estate — ARMS, construction, home equity — as well as credit card, student, and business loans.

“We’re not beholden to any one type of loan,” says Fred Ryerse, senior vice president of lending.



According to Ryerse, the credit union is a “middle-of-the-road” lender. It does not approve every loan application but it does consider the merits of individual situations and relies only minimally on auto decisioning. After considering an applicant’s income and credit, loan officers make a judgment call on whether the borrower is likely to pay back the loan.

“It’s a challenge when you’re doing 10,000 applications a month in 15 minutes or less,” Ryerse says. “But if you take the time on the cases that need taking time for, you can make that happen.”

It’s this pushback against auto decisioning that Ryerse says sets Members 1st apart from other financial services institutions. Banks, and even many credit unions, rely on auto decisioning to save time and money. Members 1st uses the opportunity to add a personal touch, putting its best people on the phone to talk directly with members.



“Loan officers are required to reach out and tell members whether they are approved or denied,” Ryerse says. “They become the contact point. If they’re denying someone, hopefully they are coaching them on why they got denied and what they can do to get approved the next time they need to apply for credit.”

With this strategy, interactions can be quick — the loan officer calls with the approval and asks where the member wants to close the loan — or they can be more labor intensive — the loan officer calls with a denial and walks through the hows and whys with the member. Even approved calls, though, offer an opportunity for cross-selling and longer discussions about add-ons such as credit life and credit disability. It’s an opportunity to add that personal touch. And although the credit union doesn’t reach out to all applicants that come through the indirect channels — doing so would be impractical, Ryerse says — loan officers do follow up if they need to clarify something on an application.

To ensure it is consistent in all its loan approvals or denials, the credit union centralizes its underwriting department. This is an operational as well as a physical decision. Younger employees benefit from firsthand observation of senior staff’s expertise. Proximity to other loan officers combined with an onboarding process that includes on-the-job training and job shadowing ensures the credit union’s 20-odd underwriters adhere to the same standards regardless of what channel a loan comes through.

cuspbestpractice_icon Best Practice

To take the pulse of the credit union membership and the larger community, Members 1st tracks the credit quality of all applications (i.e., A+, A, A-, B, etc.) as well as the quality factor of approved applications. This allows the credit union to see, for example, that 60% of its loan applications are coming from A or A+ members and 92% of A+ members are approved. With information like this, the credit union can determine whether the credit conditions for its community are changing and take a deeper look at what factors are playing into a denial for an A credit member.

From 2005 to 2007, the delinquency ratio of Members 1st closely tracked that of its asset-based peer group of credit unions with more than $1 billion in assets. As credit unions, particularly those in the Sand States, reported increased delinquency throughout 2008, 2009, and 2010, Members 1st remained just slightly above the Pennsylvania average for reportable delinquency. Despite being close to peer averages in delinquency, Members 1st has remained below peers for most quarters in charge-offs, indicating the credit union and the members work through any payment troubles.

“After we make a loan decision, I have an active quality control department,” Ryerse says. “It’s what keeps us consistent.”


The quality control department reviews a random sampling of both approved and denied applications to ensure the credit union is using consistent standards. And it reviews approximately 2% of decisions, or 20 a month, from every loan officer, so managers can use the review information to coach staff members on their decision making. The credit union then completes a secondary review on all the closed loans that stay on the books. This ensures the credit union is abiding by all regulations and completing all appropriate paperwork.

“From a regulatory standpoint, we look at every loan,” Ryerse says. “From a quality control standpoint, we’re looking at a percentage of the applications.”

Such attention to detail allows staff to catch errors and forecast possible problems before they arise. According to Ryerse, the quality control position at Members 1st is ideal for someone who is not interested in management or leading a team but has the appropriate credit skills to work and think independently. Members 1st hires people from within the institution, such as from its loan officers who have underwriting experience, to fill these roles. It also hires from outside. In the end, it’s not where they come from that matters.

Instead, Ryerse says: “It’s all about having the right skill set.”