CUs Must Revamp Lending Programs To Spur Stagnant Membership Growth

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Credit unions must offer innovative loan products not only to encourage existing members to borrow at their CU but also to entice new members into the fold, according to NCUA Board Member Debbie Matz.

In remarks before the CUNA Lending Council's annual meeting, Matz discussed her ongoing concern that credit union membership growth remains stagnant.

Pointing to data from third-quarter call reports, Matz noted a sharp decline in asset growth, which still far outpaces membership growth.

Assets in all federally insured credit unions are growing at an annualized rate of only 6.8% in 2004-down sharply from 9.5% in 2003, 11.1% in 2002 and 14.5% in 2001. For each of these years, membership growth has remained stagnant at around 2%.

"The vast majority of asset growth has been coming from existing members," Matz noted. "I have been concerned that credit unions cannot safely sustain this pace into the future. Now we are seeing a significant slowdown in asset growth. The best way for credit unions to regain strong asset growth is to make loans to new members.

"To reach new members, credit unions will need to offer loan products that will attract people from all ethnic backgrounds."

In particular, Latinos and Asians are under-represented in credit union memberships, Matz suggested, while these two groups are projected to grow by 75% to 80%.

Matz shared loan strategies from credit unions that have tried to reach out to these grups for attendees to consider:

* Alternatives to Predatory Lending: NRS Community Development FCU in Alabama offers short-term loans as small as $200 to help borrowers survive emergencies without resorting to predatory lenders.

ASI FCU in Louisiana offers 18% risk-based loans that empower borrowers to break their cycle of debt at check cashers and payday lenders.

"These products enable credit unions to make loans to almost everyone, including 'C' and 'D' borrowers," Matz observed.

* Affordable Mortgages: "Although the national homeownership rate is near 70%, barely half of all minorities are homeowners," noted Matz. "The same is true for families with low-to-moderate incomes. Credit unions can close this homeownership gap by partnering with Fannie Mae, Freddie Mac, and many other organizations to make mortgages more affordable." Matz shared examples from $1-billion San Antonio FCU and $1-million Shiloh of Alexandria FCU) that have leveraged partnerships to offer mortgages with low down payments, below-market interest rates, and reduced closing costs.

* Member Business Loans: "For credit unions that hire experienced business lenders and do their due diligence, member business loans are an opportunity to reach new members with a service most cannot get anywhere else," Matz suggested. "MBLs can reach new members from all ethnic groups. For example, many Asian immigrants are leaving farms in their home countries and starting businesses in America. And businesses owned by Latinos have a tremendous need for capital. Only 18% of Latino-owned businesses receive loans from banks or credit unions."

"Providing these services will diversify your membership as well as your assets," Matz concluded. "You will reach new markets, fulfill your credit union's full potential, and lay the foundation for an even stronger future."

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