FORT LAUDERDALE, Fla. — Helping members gets harder when credit scores fall, but understanding what's behind the decline can help CUs find their way.
"It's a combination of things," explained Lloyd Gill, chief lending officer at City County Credit Union and chairman of the CUNA Lending Council. "There is an increase in delinquency across the board and the other thing is the credit limits that are being lowered are causing utilization rates to go up. This is the first time I can remember seeing credit limits across the board being decreased this much."
Though most CUs are not clamping down on credit cards, many of the major banks and other card issuers are making huge limit cuts to pre-empt losses as their balance sheets remain deluged by red ink.
"I think what they are doing is trying to be more diligent in finding the folks who have excessive amounts of debt," Bill Vogeney, chief lending officer at Ent FCU and secretary of the CUNA Lending Council, explained. "I don't think it's wholesale declines in limits but they certainly are trying to find that 5% to 10% of their portfolio that is likely to default in the next year."
Unlike many recessions, members who are seeing the most dramatic decline in credit scores are in the middle class. While the typical recession sees those on the lowest end suffer the greatest, middle class Americans have seen their creditworthiness evaporate as housing values plummet and large credit lines get reduced.
"The recession is impacting a pretty wide range of individuals, [but] the area our portfolio has been hit the most is in 680 to 720," Vogeney said.
"The pendulum is swinging the other way now. Even people that had good credit scores and were underwritten properly will be penalized because of sins of the past," added SACU lending director Chuck Smith.
As more members take substantial hits to their credit from job losses or foreclosure, Gill believes credit unions need to be there to extend a helping hand. To that end, City County is heavily promoting a program to help the newly-credit impaired with monitored checking accounts, credit cards and auto loans that are safer for the CU.
"If this is becoming a large part of your membership base you ought to have products to serve them," he said.
The current environment is a great opportunity to build loyalty and taking a chance on members, as long as it is in a CUs capacity to make some riskier calls, can reap huge rewards down the line.
"Not only look at [loans] on a case by case basis but you have to think beyond the current situation. The advice I would give is consider your long-term relationship with your members," Wai suggested. "Credit union members remember two things. One, their first loan and two, the loan they need the most. And there are a heck of a lot of people who need loans right now. If you give them a loan when they are in need, they are going to remember it."
