Worldwide Membership Creates Unique Lending Challenges

Strong common bond keeps delinquencies low despite geographical hurdles.

January 25, 2013
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United Nations Federal Credit Union in New York has a unique place in the credit union movement as an organization that serves members in more than 200 countries and territories with some 99,000 members.

One of the challenges of working with an international field of membership is that most borrowers lack a credit history, FICO score, or Social Security number. So the $3.7 billion asset credit union developed a proprietary country scoring system, says Sarah Klinger, assistant vice president, lending operations.

“Each country is scored based on risk and delinquency experience and the macro-economic outlook, including factors such as unemployment rate, gross domestic product growth, and currency volatility,” she explains.

In 2011, United Nations Federal developed auto-decisioning for low-risk, high-volume products such as Visa credit cards and lines of credit. During that year, the credit union originated 1,959 consumer loans using auto-decisioning.

Loans are offered in U.S. dollars. If the currency in which the borrower is paid is significantly devalued, the member may be able to extend the loan term to decrease the monthly payment amount.

Last year, in response to a significant devaluation of the Kenyan Shilling, the credit union offered loan modifications to members paid in this currency.

Consumer loan growth has averaged close to 10% for the past three years at United Nations Federal, yet its consumer loan delinquency ratio has hovered around 1.2% to 1.3% during this time.

Even more remarkable is the credit union’s net charge-off rate, which typically has remained less than 0.40% since 2008. How are these numbers accomplished?

“Even though we are geographically dispersed, we have a strong common bond,” says Klinger. “Our members associate strongly with their employer, the United Nations. They pay us first.”

Another challenge for members filling out loan applications is finding a fax machine in countries where they aren’t readily available. Members now can complete loan documents online.

“Members used to have to fax loan notes back and forth; now they have better access to the Internet,” says Klinger. “With [electronic signatures] they can complete the process online and receive their funds faster.”

EMV fights fraud

United Nations Federal was the first financial institution in the U.S. to offer a chip and personal identification number (PIN) credit card in 2010. This EMV (Europay-MasterCard VISA®) offering was in response to members who travel and change duty stations frequently, residing around the world.

They needed more secure and convenient access to their funds while in locations that no longer support magnetic stripe cards, such as at self-serve ticket booths, gas stations, and food kiosks.

The chip and PIN feature provides a higher level of security against fraud than the magnetic stripe card. Due to the security keys placed in the microprocessor during the manufacturing process, the chip stores data securely.

While incidences of fraud continue to migrate to the U.S.—it’s the easiest target due to the ubiquity of the magnetic stripe card—fraud dropped 30% at United Nations Federal from 2010-2011, largely due to the EMV card.

United Nations Federal Credit Union won an Excellence in Lending Award from the CUNA Lending Council and CUNA Mutual Group for consumer lending among credit unions with more than $250 million in assets.

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