Credit is heart-blood for the economic well-being of an individual, community, or country. The top public policy priority for the past two years has been to restore the flow of credit at every level of the economy. And in every discussion about reducing unemployment, the expansion of credit is paramount.
This being so, last year's figures are bleak: Just-released 2009 year-end data for the banking industry shows the sharpest drop in lending since 1942. According to the Wall Street Journal, the 7% decline in total loans was an "epic pace."
But credit unions grew their loan portfolios for the 64th time in the past 65 years. They granted more than $271 billion, a 7% increase over 2008, in reaching a total of $581 billion in loans outstanding.
The New Challenge
Making loans is not easy. And in an economic downturn, credit judgments are more difficult. Even so, by lending within their field of membership, credit unions' losses are less than half of those of other financial institutions.
In the recovery phase of the Great Recession, competition for credit has returned. With short-term overnight investment yields at 0.25% or less, the margin between returns on loans and investments has never been greater (see below).
Every lending institution realizes loans are critical to success. Credit unions are taking action to grow loans outstanding in this recovery phase, including:
Capturing loans members have elsewhere. Offer a lower rate, and then show members the lower payment that results from refinancing.
Seeking participation loans from other credit unions when member demand is not sufficient.
Creating new lending partnerships with businesses in the community, including auto dealers, realtors, and contractors.
Rethinking traditional lending parameters. With sliding credit scores, lenders are putting less emphasis on ratios and more on character.
Looking at new lending markets, including private student loans, solar energy home improvements, and new borrowers, such as municipalities for fire truck loans.
Developing unique loan products, especially in real estate. One credit union does not compete with conforming products, opting instead to create unique ARMs for its members; other credit unions have extended 10-year or 100-month loans for autos above a certain dollar amount.
Promoting the credit union difference in traditional product areas such as credit cards. Many credit unions are capitalizing on the publicity from the CARD Act and re-presenting the simplicity and economic value of their card offerings.
Why Credit is Vital
Providing loans is such an ordinary activity that until the "credit crisis" many took this intermediary activity for granted. Then lending froze at all levels of the national – indeed global – economy … except at credit unions. Then, what was an ordinary activity became extraordinary. Credit unions demonstrated cooperatives could continue when markets could not.
In this century, as in the last, credit will be central to America’s economic success. Continued growth of the credit union movement will mean increased availability of credit; responsible lenders, whose only interest is the well-being of the borrower, will fuel the U.S. economy with a little more "cooperative soul."