|L-R: Rick Schmidt, CEO of WestStar CU; Richard Holloway, CEO of Alta Vista CU; and Ray Shams, Chief Lending Officer for Xceed Financial FCU|
LENDING'S NEW AGE: BEYOND THE SCORE
updated 01/28/14 09:05 AM
A 'Huge Potential' for CUs
“It’s a vastly different world out there,” said Rick Schmidt, CEO of WestStar CU. “We have to look beyond our members’ past and focus on where they’re going in the future.”
Hailing from Las Vegas, where the bulk of his members are gaming employees, Schmidt’s perspective illustrates a phenomenon gaining speed across Nevada, California, and the nation. Tarnished by the Great Recession, many borrowers are still too risky to lend money to, or too young to show established credit.
That’s on paper. The reality is, several of these individuals are just as creditworthy as their peers with higher or established credit scores, for various reasons. Credit unions have an opportunity to fill this gap, a fact that many CEOs and lending executives are starting to realize.
“About 70 percent of people who apply for loans at our credit union have a credit score under 650,” Schmidt said. “Does this mean they’re not worthy of borrowing from us, or they’re bad people? We can’t completely use the past to judge their future because the past is so, so skewed.”
Research points to the same conclusion. A migration toward “holistic underwriting” by some credit unions and banks is stirring in the ranks, according to a white paper released in August by the Credit Union National Association’s (CUNA) Lending Council. Folks who had good credit are now seemingly subpar due to financial setbacks during or after the recession—usually the loss of a job, home foreclosure, or sometimes both. They are “still willing to pay their debts,” the council’s research states. “There is room for loosening some underwriting standards while still being prudent lenders.”
A commentary published by the Federal Reserve Bank of Cleveland in November 2010 reminds lenders that consumers’ credit scores aren’t “totally within the individual’s control.” The odds of someone repaying a loan aren’t completely dependent on his or her score, but rather “their translation into the level of riskiness they represent at the current time.”
Further research issued by the Applied Research Institute—a consortium of credit unions in California, Nevada, and other western states—validated this point in a September 2010 analysis, entitled New Consumer. “Standards need to be adjusted,” it states. “If not, credit unions are likely to unnecessarily over-tighten and damage the service they provide their members, and lose out on potential loan opportunities.”
This forward-looking approach of seeing consumers in a new light goes even deeper. Technological improvements to underwriting and so-called “behavior profiling” and “big data mining” are vetting the right opportunities for lending at some financial institutions, said Karan Bhalla, managing director of IQR Consulting, a firm serving both credit unions and banks.
“Behaviors tell a lot,” Bhalla said. “They tend to be very strong indicators of loan performance.”
Studying payment behaviors and decision habits isn’t new. But in this day and age, larger amounts of information and analysis on credit union members and bank customers is helping anticipate the exact moment they’ll need a loan or credit, along with their chances of default. Banks, especially the large ones, are ahead of the curve on this trend.
However, even the smallest of credit unions have enough data to start crunching numbers and charting possibilities.
“In many cases, you can still lend to someone even if they don’t have a good FICO score,” Bhalla said. “There is huge potential for credit unions of all sizes, a few of which are at the beginning stages of this. For many, it will be a leap of faith.”
Click here to read the full perspectives of WestStar CU CEO Rick Schmidt, Alta Vista CU CEO Richard Holloway, and Xceed Financial FCU Chief Lending Officer Ray Shams within the latest News and Views column on Pages 6-7 in the February/March edition of Credit Union Digest!
WCMS 2016 COLLOQUIUM updated
07/18/16 02:25 PM
It’s Up To You!
In the midst of the warm balmy, breezes typical of a Southern California evening at Bridges Auditorium in Claremont, CA, Jim Nussle, president and CEO of the Credit Union National Association (CUNA), took the stage in front of students from across the country at the Richard Myles Johnson Colloquium in Credit Union Philosophy on July 14.
'REACH 2016': IT'S TIME TO EXPLORE updated
07/07/16 03:53 PM
Education, Collaboration, Excitement
REACH 2016—the California and Nevada Credit Union Leagues' much-awaited annual convention—is taking place in four months at The Cosmopolitan of Las Vegas from Nov. 2-4. Are you ready?
WHAT CUs ACCOMPLISHED IN SACRAMENTO updated
07/05/16 09:52 AM
Mid-Year Legislative Update
The California State Legislature adjourned for summer recess on June 30 so state lawmakers can spend the month of July in their districts. But before doing so, major deadlines were met, including passing the state budget, completing all policy committee hearings, and passing any legislative measures intended to make it on the Nov. 8 election ballot.
LOCAL MEDIA: WHAT CUs SHOULD KNOW updated
06/27/16 03:45 PM
Regional Footprint Creates Opportunity
Over the past five days, a string of events pushed the “credit union” name into the spotlight on the websites of 10 suburban daily newspapers across Southern California—a phenomenon revealing how media conglomerates operate today, and how credit unions fit into this crowded and emerging picture.
NEVADA CREDIT UNION LEADER PASSES updated
06/23/16 12:49 PM
More Information to Follow
The California and Nevada Credit Union Leagues received word that Doug Schwartz, President and CEO of Elko Federal Credit Union (EFCU), was struck by a car yesterday in Elko, Nevada and passed away early Thursday. Details are still being investigated.
TMG, CO-OP: BLOCKCHAIN STUDIES updated
06/22/16 02:45 PM
Help FIs Evaluate Opportunities
Three influential payments industry players–TMG, CO-OP Financial Services and Mercator Advisory Group–are making progress on their collective plan to create much-needed clarity around the potential for blockchain technology in the community financial institution industry.
CUs CONVERGE ON ECONOMY AND STRATEGY updated
06/20/16 03:00 PM
Forecast, Discussion, and Ideas
How can credit unions prepare for 2017 given so many "what if" scenarios on the economy, interest rates, labor force, household demographics, political environment, and consumers?
DIVERSITY: GOOD INVESTMENT FOR CUs updated
06/16/16 02:33 PM
Latest Issue of “The NCUA Report”
In the latest issue of the National Credit Union Administration’s (NCUA) monthly newsletter, an article by the Office of Minority and Women Inclusion outlines how diversity leads to better service, greater innovation and increased membership. These outcomes make credit unions stronger and more sustainable, and ultimately lead to greater strength for the entire credit union system.
CA CUs SURPASS $100B LENDING MARK updated
06/14/16 08:06 AM
Auto Market Under the Microscope
California credit unions just hit a record: they surpassed the $100 billion lending milestone for the first time ever, with used auto loans making a superstar appearance during this historical moment.
FEDERATION AND EQUIFAX PARTNER updated
06/13/16 02:48 PM
Launch Financial Capability Center
The National Federation of Community Development Credit Unions (Federation) and Equifax Inc. announced a partnership to build the Westside Financial Capability Center. The Center will provide the Atlanta Westside community with affordable banking, alternatives to payday loans, affordable home mortgages, and a suite of financial services designed to empower residents to achieve their financial goals. The search for a physical site has narrowed to several options that will allow the Center to function in coordination with Atlanta area credit unions, community stakeholders and service providers. Equifax has committed $450,000 through 2018 in support of the Center which is scheduled to open in early 2017.
TWO LARGE CALIFORNIA CUs TO MERGE updated
06/09/16 02:33 PM
N. Island Financial CU & Calif. CU
Two California credit unions—the $1.24-billion North Island Financial CU and the $1.6-billion California CU—announced plans to merge.
'JUNTOS AVANZAMOS' ADVANCES FORWARD updated
06/02/16 08:09 AM
Kinecta FCU Becomes 6th in CA
Kinecta FCU and its affiliate, NIX Neighborhood Lending, were recently recognized by the National Federation of Community Development Credit Unions and the California Credit Union League with the “Juntos Avanzamos” (Together We Advance) certification—a branding initiative helping credit unions become the preferred financial resource for local organizations serving underserved Hispanic immigrants.
MEETING WITH NCUA REGION V DIRECTOR updated
06/01/16 02:11 PM
Freed Committed to Fair Process
Today in Sacramento, local credit union leaders met with National Credit Union Administration (NCUA) Region V Director, Cherie Freed, who succeeds Liz Whitehead.
DEFENSE CREDIT UNION COUNCIL LIAISON updated
05/27/16 10:21 AM
McWatters Named to Represent NCUA
At the request of NCUA Board Chairman Rick Metsger, Board Member J. Mark McWatters will serve as the National Credit Union Administration’s liaison to the Defense Credit Union Council.The agency is committed to supporting service members and hiring veterans.
RMJ LAUNCHES 'BITE OF REALITY' APP updated
05/26/16 02:40 PM
Modernizes, Streamlines Program
The Richard Myles Johnson Foundation recently rolled out an app for its successful Bite of Reality program. The app— believed to be the first of its kind for a credit union-sponsored reality fair program—modernizes Bite of Reality, making it more relatable to young people.
DECISION ENGINE TECHNOLOGY updated
05/24/16 09:57 AM
Get The Most Out of Your Technology
May is an awkward month. It’s as if it is not sure exactly what it wants to be. Somedays in May are more like April; some are more like June. Perhaps that is where we got the word “May”-be? But, one thing that is certain about May is that it is the month of graduation ceremonies, and much like the month itself, graduates are at that awkward point in life, where the future is not quite certain.
MOUNTAIN WEST JOINS 'PLEXCITY' updated
05/23/16 03:22 PM
CU Association is 6th Shared Owner
Mountain West Credit Union Association is purchasing a shared-ownership stake in Plexcity for information technology, accounting/finance, and human resource solutions, adding to the Ontario, CA-based company’s unique story of growing collaboration between credit union trade associations since January 2015.
CONNECTING WITH MEXICAN IMMIGRANTS updated
05/19/16 10:29 AM
Matrícula Consular Online Seminar June 9
Lack of identification is one of the biggest barriers for Hispanic immigrants to access affordable financial services. RSVP for a Juntos Avanzamos online seminar on using the Matrícula Consular to reach unbanked Mexican immigrants. Learn how to use the Matricula Consular as a safe, effective way to open savings and checking accounts.
SUMMER IMPACT OPPORTUNITY FOR CUs updated
05/19/16 03:30 PM
$21M Toward Jobs For Young People
Federal government leaders are working hand in hand with local stakeholders to craft solutions that harness resources across multiple agencies in response to local needs and priorities. Since 2009, more than fifteen Federal agencies have launched dozens of initiatives and partnerships with over 1,800 rural, tribal and urban communities. Federal leaders are working across agency lines and offering hands-on support to build local capacity, provide expertise, and unlock resources to help community leaders achieve their goals.
'IT WAS THE RIGHT THING TO DO' updated
05/17/16 10:16 AM
CFO Professional of the Year
Most new ideas aren’t necessarily new, according to Susan Gruber. They are old concepts with a new twist, and they can have great potential.
WHY ONE SMALL CU RANKS BIG IN TECH updated
05/09/16 08:48 PM
Behind United Catholics FCU
No one was perhaps more surprised to learn her credit union ranked No. 1 on MagnifyMoney’s most recently published list of “most digitally savvy” U.S. credit unions than Lucy Sloan.
FINANCIAL CAPABILITY COLLOQUIUM updated
05/03/16 11:38 AM
Measuring Credit Unions' Impact
Nearly 30 leaders and professionals came together last week at the first Financial Capability Colloquium to discuss how to collectively and effectively measure the individual financial literacy efforts that their credit unions and organizations routinely implement within their communities, and how to use these measurements to tell a powerful story that will resonate with the public.
METSGER APPOINTED NCUA BOARD CHAIR updated
05/02/16 05:17 PM
Plus, CFPB on Arbitration and TRID
President Barack Obama has appointed National Credit Union Administration (NCUA) Vice Chairman Rick Metsger to be the ninth chairman of the NCUA Board of Directors, succeeding outgoing Board Chairman Debbie Matz, whose service ended April 30.
TV INVESTIGATION SPOTLIGHTS 'PACE' updated
05/02/16 02:39 PM
Protecting Consumers Becomes Crucial
A TV news station in Los Angeles has captured a clear example of consumer protection issues stemming from the “PACE” lending program (Property Assessed Clean Energy) in just one instance of how it is proving financially harmful to homeowners and credit union members across California.