HIGHLANDS RANCH, Colo. -
The $138-milion CU rebates 5% of home-equity interest paid at the end of every year to the member, which, depending on the loan balance and interest rate, can amount to several hundred dollars.
Red Rocks CU's core-processing system, XP2, computes the rebate and pays the member on the last business day of the year, so the 1098 IRS reporting reflects the correct amount of interest paid. The credit union accrues this amount on a monthly basis so its December financial statement does not have to take the "hit."
Steve VanSickler, senior vice president and chief lending officer for Red Rocks, said the credit union was looking for something to differentiate itself from other rebate efforts.
While some rebates give back a percentage of purchases, he said Red Rocks' "Home Equity Interest-Paid Rebate Program" is completely different.
"It effectively gives them a lower rate, but when you have a relationship-based pricing rate, people forget," he said. "They just think that's the rate and forget it came from having multiple products with their credit union."
The idea is not new - VanSickler said it was done 50 years ago-but Red Rocks used several Internet search engines and could not find any institution that presently was doing such a rebate.
The results have been excellent, VanSickler said. The rebate program was implemented April 1. In comparing the Second and Third Quarters of 2007 to the same period in 2006, Red Rocks CU has seen a 32.5% increase in standalone home equity product fundings, which he attributed to the program.
Response from members has been so positive, Red Rocks is in the process of implementing an interest-paid rebate program for all consumer loan products in 2008 to additionally differentiate itself in the marketplace and increase return to its borrowers, VanSickler said. The credit union needs every differentiator it can get, he added, as it is one of 29 financial institutions in this Denver suburb.
"We want to do it with overdraft lines of credit, auto loans, signature loans and other loans. We won't do it with mortgage loans, because that gets into significant dollar amounts. Rebating mortgages is not practical for a credit union of our size. For home equity lending and consumer lending, though, it works very well. It definitely is a tool for marketing in a local area that differentiates from other institutions," VanSickler said.
The only caution VanSickler offered to other credit unions interested in establishing a similar program is a technical one: he said the rebate works for Red Rocks because the credit union's core processing system handles calculations electronically. If a credit union's system involves manual processes, he warned, it would have to examine how much extra workload would be involved at the end of the year.
Other than that, he said: "There were no negatives other credit unions would need to avoid. Most credit unions do relationship-based pricing, usually around 50 BP.
"This 5% rebate ends up being about 43 basis points, but the credit union gets more mileage out of it without giving up the extra 7 basis points."
FOR MORE INFORMATION
www.redrocks.org
