Not every credit union that has ratcheted down its loan rates is seeing an immediate influx of applications.
For a long time, IBM Metro Employees FCU, New York City, has been a "loan-challenged" credit union, according to CEO Steve Goldberger. With a "horrible" loan-to-share ratio that had been in the 50% range and is now in the low 40% range-due in part to seeing loans paid off early and increases in shares-the CU turned to risk-based pricing seeking to reverse the trend. The current economy hasn't helped, but the $48-million CU is starting to see fruits of its lending labor.
"We took a look at the rates and started to aggressively price them off of the investment rate," Goldberger said, explaining that prior to implementing risk-based pricing, IBMEFCU tended to price its loans "middle of the road" for "B" and "C" credit across the board.
"We added 150 basis points to come up with a 24-month rate of 3.45%," Goldberger related. "I hate to say this, but we're still not seeing much impact in new cars; we're still seeing more used car activity. I think our rates are comparable to what they're finding at the dealer, so we lose to the dealer because we're not doing indirect lending."
IBM Metro EFCU's current sub-4% loan rate is still fairly new, and a recent promotional postcard is helping to raise awareness of the offer Yet the credit union continues to face a loan challenge resulting from the nature of its membership.
"Our field of membership is very upscale; we know they're making a lot of money, so we're thinking they don't need a lot of loans," Goldberger explained. "Risk-based pricing is only a couple of years old, so it's really an education process."
And it's not just the membership that needs to be educated. "The biggest challenge is getting our member service reps to cross sell. We brought Rex Johnson (founder of Lending Solutions, Inc. and the University of Lending) for a one-day session and did some training. A few have embraced it, but there are still too many who haven't. We're going to do more training and more direct mail using the Raddon Financial Group's information to do more targeted marketing."
IBMEFCU is also installing a new phone system so both out-bound and in-bound calls can be monitored for performance.
"We're pretty much on target for the year. We're at about 75 basis points for ROA, whch is where we expected to be," Goldberger told The Credit Union Journal. "Budgeting for (2003) is a real challenge."
New Fees Introduced
Traditionally a fee-adverse credit union, IBM Metro has started to implement some new fees, such as a courtesy pay fee, to help bolster the bottom line. "We're selling off mortgages, so see some fee income from that, and we do vehicle warrantees, so we see some fee income from that, too," he added.
At Austin Telco, the 3.95% that the research firm Datatrac uncovered represents promotional pricing-but don't expect it to go back up next week, or even next month, necessarily. "That's a promotional rate, but we don't have any date set to change it back," said CEO James Poplin. "Let's just say we're in no hurry to change it. It's been there for a few weeks now. It was at 4.75% before."
While ongoing Fed cuts have helped push down rates, Poplin suggested there was more of a CU philosophy behind its decision. "It was really more that we decided to give back to our members," he offered.
Then again, there was stiff competition from other credit unions to consider, too. "There are a lot of indirect deals by credit unions from out of town that were at 4% and 4.5%, and we wanted to beat those. But we've always had some of the lowest rates around."
And the 0% APR financing at the dealerships is part of the equation, as well, Poplin observed.
"We're seeing too many refi's and a lot of share growth coming in," he told The Credit Union Journal. "We just got into real estate loans about three months ago through CU Mortgage. Here in Texas, we just recently had a change in state law allowing us to do home equity loans, so we're getting ready to do that. The laws for home equities are very conservative and very complex, so we bought some software to ensure compliance, and then we'll start in on that next month. The real estate loans have really taken off."