Saying No

It’s difficult when members don’t qualify for their loan, but credit unions are doing those borrowers a favor declining them.


Credit unions are proud of the fact that they take extra time to serve members' financial needs. Many executives have been telling me lately that in lending, they listen to members stories and learn their situations, and don't just rely on their credit scores.

Saying no to a member who says they need a loan is tough. But the fact is that allowing a member who is not qualified to go into debt is not in their best interest. Sometimes, the best way to serve a member is to say no.

Credit unions' short terms loans lately are being hailed as more humane alternative to payday lenders, who charge outrageous fees that trap borrowers in an ongoing cycle of debt. The relief loans that credit unions are offering can indeed push these borrowers into a healthier financial situation and get them back on track to financial freedom.

But even these borrowers can rely too heavily on the lower rate credit union loans, and if they dig themselves deeper into debt with them, they are prime candidates to default.

The credit union industry is adding loans at a strong pace, with business lending the fastest growing segment, according to Callahan & Associates' FirstLook data of nearly 7,000 credit unions that have reported 2Q 2012 data. Business lending increased 8.7% in the second quarter and first mortgages increased 7.8%.

Underwriting loans for first time homeowners or entreprenuers is rewarding, serves the credit union's member-focused mission and can be very profitable. But, of course, declining risky loans is also in the credit union's best interest. It significanlty reduces delinquency and charge off rates. So, credit unions should continue to work closely with borrowers and decide carefully for themselves who's worth lending to.


Aug. 22, 2012



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