College credit unions had early crash course on coronavirus's impact

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Before K-12 schools began closing their doors for the remainder of the academic year and states across the country issued long-term shelter-in-place directives, university credit unions were getting an early taste of COVID-19’s impact.

By March 11, colleges across the country had begun closing their doors to students. Many began with a test run of turning to online classes instead of in-person instruction for a few weeks after spring break. Now hundreds of universities nationwide have committed to keeping classes online for the remainder of the school year. Some campuses are still open to faculty and staff, but in most cases students have been instructed to return home for the year.

As coronavirus diagnoses have spread, credit unions have reallocated staff and begun limiting branch access. But as college campuses emptied, CUs chartered to serve universities had an early look at how the pandemic might impact business.

Duke University elected early on to keep classes online for the entire semester, and Daniel Berry, CEO of Duke University Federal Credit Union, said the credit union could be impacted by that move.

“We have more members that are employees as opposed to students,” he said. “The university will still be open, so those people may or may not be around, because if they’re working from home that presents a different dynamic. You may be convenient to where I work but you may not be convenient to where I live. Everybody’s promoting remote services. For the most part that helps, but there are times where you need to have a face-to-face interaction, and from that point we’ll have to do the best we can as we go.”

Duke CU has attempted to find the right balance of face-to-face and remote staffing, but Berry said part of the impact on the credit union will depend on member behaviors.

“If they’re working from home does that mean they still go to the grocery store and come to the credit union?” he asked. “Then it’s business as usual. If more people are staying at home, it could be you rotate your tellers to try to keep them safe but make sure you have more people to answer the phones for any problem resolution.”

Berry and other sources said despite this uncharted territory, university credit unions may have a leg up on some other CUs since they are familiar with large-scale changes in member behaviors and branch traffic patterns because of spring and summer break.

“That’s the nature of the business – [students] are not always around,” admitted Chris Lazowy, SVP of member services at Massachusetts Institute of Technology FCU in Cambridge, Mass., where 32% of its membership are students.

“It’s not just the students, it’s the whole university,” he added. “Everybody is being asked to work remotely. We’re a financial institution – we’re part of MIT but we don’t run the same way as them. We need to keep the motors running, so we’re shifting staffing around right now but we don’t’ staff up or down depending on the time of year.”

MIT FCU has moved as much staff to remote operations as it can and closed some branches. Additionally, staff are also being staggered to ensure that in the event some employees become infected with COVID-19 they pose as little risk to the rest of the workforce as possible.

How bad will it be?

If social distancing practices continue for an extended period of time, they could cut into credit unions’ profitability. The good news for CUs serving universities is they may not be any worse off than other institutions despite in some cases seeing these trends start earlier than others.

“The people that work at these universities or the students that have accounts their because of their affiliation…are still going to need access to financial services, be it on the deposit side or the loan side,” said John Murnane, a CPA and shareholder at Doeren Mayhew.

One other element that could shield university CUs is that while many of those shops have names reflecting an affiliation with the college, their fields of membership have expanded over the years to beyond the school.

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While membership at Duke CU is open to current and former staff and employees, students, alumni and immediate family members, other university-affiliated credit unions cast a wider net. MIT FCU opens membership not only to students, faculty, staff and alumni, but also more than a dozen select employee groups. Michigan State University FCU, the world’s largest university credit union, serves student, faculty, staff and alumni, as well as members of more than 100 SEG groups and any Michigan state employee, no matter their location.

Like CUs with other fields of membership, university-based institutions could suffer if loan volumes drop or delinquencies begin to increase. One big factor, said Murnane, is how colleges continue paying employees. While faculty members will likely keep getting paid with classes online, that might not be the case for staff members and other on-campus workers who may be credit union members.

The same is true for any SEG-based credit union that sees a work stoppage as a result of COVID-19, he said.

“They may do that for the next two weeks, but if this goes on until May or June or longer, at some point those companies are going say we can’t pay people without incoming revenue,” said Murnane. “Then you have a disaster because not only do you have a slowdown in lending but problems in loans already existing on the books where people can’t make payments, so you’ll see delinquencies skyrocket and chargeoffs skyrocket.”

Duke CU’s Berry said the question isn’t whether the pandemic will cut into business lines but how sever it will be.

“I think even if people are at home for a couple weeks, there’s going to be less people looking for a car, less people taking a vacation because [they’re] scared [they] may catch it on a plane or what have you,” he said before states began issuing shelter-in-place directives. “I think it’s inevitable that it’s going to be a tough year. From that point of view I’d assume every credit union is looking at their contingency plans and saying, ‘We know this is not going to be a stellar year, how can we mitigate the impact to the credit union as a whole and ultimately to our members?’”

The key to that, he said, will be balancing offers that can assist members while working to ensure CUs aren’t seen as attempting to capitalize on the pandemic. Many credit unions have already rolled out programs to help members deal with the outbreak’s economic impact.

“You have a lot of people in the U.S. that live paycheck to paycheck, and if their paycheck is even just reduced because they don’t have the number of hours they had before, what are they going to need as a bridge or transition until they get more hours or a different job?” said Berry. “From that point I think there will be some need; I also think the dollar amounts of the loans are going to be less. You’re not doing a $30,000 car loan, you’re doing a $1,000 unsecured loan. Overall I still think you’re going to have less loan volume, but there could be some opportunity there.”

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