CUs Lend Members a Hand
When the economy went down, CUs stepped up.
During the worst economy since the Great Depression, credit unions did what banks wouldn’t: They stood by their members and extended financial lifelines to those in need. They went the extra mile to help members in financial turmoil.
The worst of economic times tends to bring out the best in credit unions. The not-for-profit, cooperative business model was born in times of economic hardship. It still shines bright during dark days.
Credit unions returned nearly $6 billion to their communities in the form of lower interest rates, higher savings rates, and lower or fewer fees during the 12 months preceding Sept. 30, 2012, CUNA reports (“The benefits of membership,” p. 30).
Their efforts reinforced what most in the industry already knew: What’s good for members is also good for the bottom line. And what’s good for members and credit unions is good for the entire community.
E.J. Donaghey, president/CEO of $270 million asset University of Illinois Employees Credit Union (UIECU) in Champaign, knew difficult days were coming to his community when the university announced sweeping furloughs in 2010 to address a budget shortfall.
“Unemployment was going up, banks weren’t lending, and members were talking about it all in our lobby,” Donaghey says. He knew the credit union had to respond to the pervasive media coverage about the poor economy and the university’s financial woes and layoffs.
The first step was to compile a menu of existing products and services for members experiencing financial hardship. UIECU created a page on its website titled “Financial Relief” for these resources. It told members about these resources in emails, on its website (uiecu.org), and through newsletters and advertisements.
“Members don’t always know where to look for this information,” says Keon Conerly, assistant vice president of marketing and public relations. That’s exactly why the credit union communicates its offerings in terms of problems and solutions rather than products and services.
Beyond the Financial Relief menu of products and services on its website, Donaghey says a critical component of its financial assistance is its willingness to align lending standards with its membership. In other words, the credit union accepts a higher level of risk to continue lending even as members’ credit ratings declined.
“We felt the credit union needed to follow members’ credit needs,” he says.
“There was a time when banks weren’t lending at all, or you had to have A or B credit to get a loan,” adds Greg Anderson, chief operating officer. “We have different pricing for credit scores under 680, but we’ll make the loan.” Otherwise, members in dire straits might turn to predatory lenders or run up credit cards to pay bills, Anderson says.
Some financial institutions won’t finance vehicles that are more than four years old or offer small, short-term loans to repair water heaters or furnaces. But UIECU will make those loans.
“It’s important to help people when and where they need help,” Anderson says. The credit union does so on a case-by-case basis, sometimes taking a loss. But most of the time, members work through their difficulties and emerge stronger—and more loyal—than before.
It all boils down to credit union philosophy, Anderson maintains. “We want to give members the opportunity to right their ships. I don’t know that there’s a business model on how to get rich doing this, but it’s how we want to treat members.”
In a testimonial collected by the credit union, new members Kevin and Emily Little recall how they came to UIECU with damaged credit aft er their bank refused to help them. “We applied for a small loan with a bank we’d been using for five years. We needed to fix our car and start to rebuild our credit history. We were denied and didn’t know what else to do. UIECU was willing to help us rebuild both our lives and our credit.”
That’s exactly what Donaghey wants to achieve. “We can’t just be there in good times,” he says. Donaghey believes members like the Littles who are steered through a crisis will remain grateful—and loyal—to the credit union. “We’re taking a longerterm view, and I wouldn’t change a thing.”
A community-wide response
“As a community credit union, it isn’t possible to focus on our bottom line without considering how the broader community is faring,” says Jill Nowacki, vice president of development for $454 million asset Maps Credit Union, Salem, Ore.
“It’s similar to how some select employee group [SEG]-based credit unions struggled along with their sponsors,” she says. “When sponsors struggle, credit unions and members also struggle. In the same way, when our community is more stable and prosperous, that’s good for our credit union.”
That’s why, when the market bottomed out in 2008, Maps set out to address the financial crisis on a community-wide level.
One of the first things the credit union did was train a core group of employees to be financial educators. These employees helped members improve their financial literacy and product knowledge.
But credit union leadership knew early on it had to reach beyond the institution’s branches to help foster a true financial recovery, says Nowacki.
The next step was to forge strategic partnerships with community organizations through which trained Maps employees would provide financial education. These partnerships were essential to the credit union’s outreach, Nowacki says, because the nonprofits were wellaware of the financial issues their constituents were facing.
This enabled Maps educators to offer timely, relevant educational programming without having to conduct costly market research to identify the issues.
“We didn’t have to spend a lot of time identifying their needs because our nonprofit partners let us know,” says Nowacki. “We just find the curriculum that targets a certain group and teach that class.”
This approach helps the credit union reach people, particularly nonmembers, at the early stages of financial hardship when more options are available to them. Increased activity at food-sharing programs, for example, can be an indicator of broader economic distress, she says.
A smart strategy This community-based approach is a smart strategy, says Mark Lynch, a consultant with the National Credit Union Foundation’s Real Solutions program. Lynch works with state credit union leagues to help credit unions develop products and services geared toward people of modest means.
“Partnering with community organizations is important because people with financial problems oft en see financial institutions as part of the problem, not part of the solution,” says Lynch. And many consumers simply aren’t aware of credit union products and services that could help them improve their situations.
“Credit unions need to go to workplaces and churches and say, ‘Just because you don’t have money doesn’t mean we can’t help you,’ ” Lynch says. Maps works with several local organizations, including the Polk Community Development Corp., Mid-Valley Literacy Center, and Mid-Valley Prosperity Network. The credit union also established new products to help members ward offfinancial distress.
Its credit-builder loan, for example, is designed for members without credit, not members with damaged credit. But the product can help members avoid high-cost payday lenders that trap people in vicious debt cycles.
Maps also offers loan modifications and skip-apayment options on many credit products. Two years ago, the credit union created a position for a community development officer, and last year it created the Maps Community Foundation to promote financial education and outreach.
Nowacki says the efforts are paying off. Membership grew steadily during the recession, rising 6.6% last year. Assets and loan volume also rose, increasing 8.5% and 12.3%, respectively.
NEXT: A proactive approach
“We decided we couldn’t wait for members to ask for help; we had to go find them,” says Stan Moeckli, president/CEO of $146 million asset Electro Savings Credit Union in St. Louis.
When the recession took hold and the housing market crumbled, Moeckli noticed that people who once had sterling credit ratings were either losing their homes outright or walking away from underwater mortgages.
Moeckli knew these people eventually would need credit rebuilding services, but he also knew it would be difficult to get them into the credit union for workshops and other educational programs.
A credit union staffmember came up with an idea that eventually grew into a formal partnership with rental communities within a five-mile radius of the credit union’s branches. Through the partnership, the credit union’s trained staffoffered financial services and educational information to people in those communities.
The credit union now provides free financial literacy seminars for rental communities, which typically have 50% turnover rates and a tenant population that struggles to make rent payments on time. Participating rental communities place credit union information in welcome packets, including ATM and branch locations and hours.
“Working with the rental properties was similar to working with a SEG, and we pitched the credit union as a no-cost benefit for residents,” says Lisa Farnen, vice president of marketing. “Employers want financially stable employees because they’re going to be more productive, and the apartment complexes want financially stable residents because they’re going to pay their rent on time.”
The approach has worked. Electro Savings started with 147 members who already lived in the rental communities. Aft er one year, that number had grown to 276.
The credit union has continued to add new communities and new members. Last year, its member growth rate was 18% within the apartment complexes and 10% overall.
Electro Savings invested in mapping soft ware to track membership growth back to their outreach efforts. “It’s not just about doing good deeds,” Farnen says. “We want to make sure the time and money is well-spent and productive.”
It’s important to track your results because it can justify your outreach efforts and educational programs, Lynch says. “Getting your credit union management team and board to agree to offer counseling and educational programs could be difficult because they might see it only as a cost,” he says. “They want to know what they’ll get in return, and what they get is membership growth and an improved bottom line.”
Farnen is quick to point out that the credit union is not in the business of offering charity. While Electro Savings does offer services that other financial institutions might not, it doesn’t compromise lending standards or underwriting policies.
“Our loan growth in the rental communities is about 25%, and we’re making good loans,” she says. The credit union’s overall delinquency rate for these loans is about 1%.
What sets Electro Savings apart from other financial institutions, Farnen notes, is that it considers more than just the credit score when making credit determinations.
“We look deep into the person’s application,” she says, “but we’re not lending money to people we think won’t pay us back.”
Pricing is important, and that sometimes means charging distressed members a bit more than others. That’s not only reasonable; it’s imperative, Farnen says.
“You don’t need to give your services away. Charge a fair interest rate or fee that compensates your credit union for the risk. Then, as members’ credit improves, they’ll qualify for lower rates.”
Community involvement is essential, Lynch and other credit union leaders stress, because it allows credit unions to tailor solutions to their members.
Aside from being the right thing to do, helping members during difficult times builds loyalty—and loyalty builds strong credit unions.