SCOTTSDALE, Ariz.- Mike Kohl is reminding credit unions that while they should still offer members competitive rates, they shouldn't price themselves out of being profitable.
Kohl, president and CEO at Kohl Advisory Group, said CUs would be well advised to place more emphasis on risk-based pricing and lending as they plan for 2014, reminding that some of the greatest opportunity for profitability comes from members in lower risk tiers.
Auto loans-both new and used, direct and indirect-also offer strong opportunities for reward, said Kohl, because everyone needs them, regardless of their credit tier.
"Also an area that's good to go after profit wise when you're coming out of a recession is recreational vehicle loans," said Kohl, noting that most members who have weathered the recession and been employed for a few years are likely to remain that way. "If they want a $20,000 or $30,000 boat and you can get an extra 1%-2% over the car rate for that boat, it seems that based on the analyses we've done for credit unions, they're generally the most profitable loans."
Card Warning
Kohl also offers what he calls "a cautionary note" about CUs and credit cards during the next year.
"They need to switch over to variable-rate pricing on their credit cards-basically move people from one product to another product," he said.
"If they missed the window of opportunity to do that-which most of them did-then believe it or not, they've got a ticking time bomb out there, because as rates go up, you can't raise the rates on credit cards anymore that are already on the books. You have to put that out almost like a separate product, and you'd better do that sooner as opposed to later."
Kohl noted that under the CARD Act, if a CU tries to raise its card rates, the increase applies to new charges only.
In addition, any payments made must be applied to the higher rate first. "So it really is in credit unions' best interest while rates are still reasonably low to try to transition their credit card programs over to variable rates tied to prime or something like that."
Kohl described credit card rates as "a ticking time bomb," though not to the extent that mortgages were "because mortgages are such huge balances." he noted. "But you get pretty good-size balances on your credit cards, too, and it's going to have an interest rate squeeze in the next year or two."
