When the economic downturn hit, homes and automobiles suddenly became much less affordable, even out of reach. Financial institutions were picky about how much they would lend and to whom. Consumers were forced to take out loans with high interest rates as a result.
But when the economy began recovering and interest rates fell, many individuals ended up holding unfavorable loans compared with the market conditions.
The potential for saving members money was immense, and credit unions responded by establishing or expanding sit and save programs that help borrowers refinance high rate loans.
A Program To Encourage Refinancing
The Fast Lane Financing program at Educators Credit Union ($1.52B, Racine, WI) began in 2009 as a way to capture refinanced auto loans before eventually expanding to include home equity lines of credit, first mortgages, and credit cards.
“We were trying to increase our loans but also help our members get in a better financial position,” says Linda Hoover, vice president of lending at Educators. The credit union only targeted loans that would benefit from refinancing to a lower rate.
Marketing then became a point of focus. For borrowers to save, they first needed to know that they could, and front-line employees, who interact the most with members, were the logical ones to share that information. If the teller was doing a transaction and saw a member paying with a Chase credit card, why not tell them about our card, Hoover says.
As of the end of July, Educators has helped about 1,700 members save $9.8 million dollars. A similar program at Seven Seventeen Credit Union ($830.5M, Warren, OH) saved members almost $32 million in interest payments between August 2011 and August 2013.
“Our focus isn’t so much on how much we saved, but how many we helped,” Hoover says.
Same Idea, Different Execution
Although Seven Seventeen’s program began in 2011 in response to a community struggling with layoffs, both credit unions needed to rethink their programs when the demand for refinancing loans subsided. As the economy improved, financial institutions were willing to make more loans, with rates becoming more competitive as a result.
“We started with the refi program,” says Eric Lanham, senior vice president of marketing at Seven Seventeen. “The thought was that this is great and will help people in the short term. But how can we help them long term? We felt the best way to do that was through enhanced financial education efforts.”
Spinning off the programs into financial education made sense to both credit unions, though they arrived at the same conclusion independently of one another. Both cooperatives also implemented the idea differently. In each case, the credit unions have adapted the same concept to fit the demographics of their membership.
Seven Seventeen, for instance, operates a microsite about personal finance, offers booklets on the topic in all of its branches, and hosts a number of seminars, tying it into a program called Balance Financial Fitness. The program invites members to speak with a trained financial counselor through a toll free number. That counselor will help members take control of their finances, whether it’s teaching them about credit reports or setting up a debt management plan.
The credit union hopes to spread the word about this program through its community outreach efforts. Seven Seventeen has employees travel to local schools to teach financial education in conjunction with Junior Achievement, a non-profit that educates students about workforce readiness, entrepreneurship, and financial literacy.
By contrast, Educators offers financial education using a more consultative approach. Through an arrangement with a credit bureau, the credit union pulls soft credit reports that provide Educators with just the opening it needs to discuss ways that a member can improve a credit score.
Both cooperatives have also counseled other credit unions looking to establish a similar program. Hoover says her credit union has spoken with approximately three-dozen institutions that started something similar while Lanham’s has worked with 18 to 20.
That willingness to help other institutions implement similar ideas isn’t unique to Educators and Seven Seventeen. The credit union industry overall has an established tradition of sharing ideas with other cooperatives for the sake of their members.
“I think one of the really cool things is that everyone is member-focused,” Hoover says about the industry. “You don’t always have to reinvent the wheel.” You also don’t have to feel like you’re stealing someone else’s idea because “it’s always let’s share.”