How can a credit union support a core member segment suffering from recession aftershocks? This is the dilemma One Nevada Credit Union ($690M, Las Vegas, NV) faced as hotels and casinos in Las Vegas and Reno reduced staff and cut hours. Entry-level workers, including housekeepers, bartenders, waiters, and more, all suffered from the widespread cutbacks. The construction industry faced similar challenges amid stalled and cancelled projects.
Pete Jenkins, senior vice president of administrative services, knows no one is immune to the hardships suffered by service and construction workers, which make up a significant portion of One Nevada’s membership. His son, an electrician who works on new construction sites, was among those affected by the recession’s aftermath.
“We’d hear announcements of layoffs in Las Vegas or in Reno of up to 30,000 people,” Jenkins says. “It was hard times for these guys.”
Members who escaped lay offs often did so only to suffer from reduced hours. “[Our members] had periods of time when they might be unemployed for five to 10 weeks,” Jenkins says.
Many in the region struggled to maintain high credit scores, so One Nevada stepped in with several second chance products, which Jenkins oversees. The credit union’s second chance menu currently consists of three primary products: New Start Checking, New Start Visa, and Advance Pay, which competes directly with payday lenders.
New Start Checking is an 8-year-old product and the anchor of One Nevada’s second chance suite. It provides basic checking services to members with low credit scores. The account includes a monthly fee of $19.50. If the account holder remains in good standing for one year, then the credit union upgrades the member to a standard checking account and services, which come with lower fees.
Jenkins admits New Start Checking’s monthly fee seems high; however, it is necessary to cover the charge-offs this high-risk product incurs. Other financial institutions would be hard-pressed to offer such a product, and in some cases, One Nevada opens accounts for members who have been denied at two or three other financial institutions.
To help reduce the number of charge-offs, Jenkins and his team use the QualiFile account decision tool to determine whether the applicant has fraud in his or her history.
“If they have not had fraud at a previous financial institution, we’ll give them a checking account,” Jenkins said. “We’re not going to deal with people who are trying to rip others off.”
The success of New Start Checking spurred the credit union to launch both the New Start Visa and Advance Pay within the past year. The credit union now has approximately 3,000 accounts under its New Start suite.
In offering rehabilitative products to members with low credit scores, Jenkins stresses such products require diligent monitoring and firm controls.
“People will try and take advantage [of the institution],” Jenkins says. “The key is being able to monitor activity closely, whether it’s a credit product or a checking product.”
That’s a lesson Jenkins and his team learned firsthand after an earlier second chance credit card product proved too risky. They realized they needed stricter qualification parameters and more acute monitoring.
These days, the credit union employs a risk management administrator devoted to the daily risk management of its second chance products. The cost of effective oversight is something every credit union needs to consider when launching second chance products; however, credit unions don’t have to trade in on their profitability in order to help members get back on their feet. In fact, One Nevada is doing better than breaking even on its second chance menu.
“It’s not a money maker, but we come out okay,” Jenkins says.
Ultimately, second chance products account for less than 10% of the credit union’s income composition. The real payout comes in helping members rehabilitate their credit and move into other products. Every year, the credit union graduates almost 100 members from New Start Checking to one of its standard checking products.
“We’ve seen folks start out with a credit score in the 550s and in three years move their credit scores up into the 700s,” Jenkins says.
Most importantly, graduates of New Start Checking who stay with the credit union are among One Nevada’s most loyal members.
“It’s nice when you can see people appreciate the products you give them and they use them properly,” Jenkins says. “We’re proud of what we do, and we’re glad to help out folks in our community.”