Why Debt Cancellation Is Growing

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Debt cancellation is here to stay as a way for credit unions to provide members the protection they want on consumer, home equity and credit card loans, a CUNA Mutual Group lending sales specialist told attendees at CUNA Mutual's 2006 Discovery Conference.

"Our research indicates the top reasons for loan delinquency are life events such as bankruptcy, job loss, a too-high debt-to-income ratio, and divorce," Terry Davis said. "Traditional loan protection insurance could only cover death and disability."

"We know most credit unions want to provide members with more loan protection options," Davis said. "Debt cancellation-which is not an insurance product, but an agreement between credit union and member-allows credit unions to offer members the flexibility to choose the protection that best suits their needs and budgets."

Debt cancellation enhances non-interest fee income for credit unions, Davis said, and can help reduce charge-offs, delinquencies and collection costs.

Joining Davis for the presentation was Leonard Gzesh, VP-strategic planning & research at the $3.3-billion Kinecta FCU, Manhattan Beach, Calif., who said KFCU offers debt cancellation on consumer loans at point-of-sale opportunities through staff at branches, call center reps, and online. Employees and members can use a web calculator tool to determine loan payments with various debt cancellation options.

"Debt cancellation protects members' credit by paying off loans or keeping them intact at a relatively low cost," said Gzesh. "For a credit union, it protects the loan portfolio against losses and generates additional non-interest fee income."

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