Are America’s credit unions “people helping some people”?

Recently, I had the opportunity to present at the Carolina’s Credit Union Leagues Leadership Conference. In between presentations, I was invited to attend the League’s CUaware Protégé presentation competition. I am glad I did; this is an amazing program!

The CUaware Protégé Competition is an opportunity for credit unions and chapters to recognize the value and potential in rising professionals age 35 and under; enhance chapter programming and credit union interest; reinforce cooperative principles and credit union philosophy; and support CUaware and the League’s investment in developing leadership.

Each of the Protégé presentations were outstanding, and their messages were passionate and inspiring. In fact, the title of this article was inspired by Zack DeMoya, Lending Assistant at Palmetto Citizens FCU. Zach was a Protégé finalist representing the Columbia Credit Union Chapter. During his remarks, he asked the question, “Are credit unions people helping people, or are we people helping some people? In my opinion, Zack made the case for credit unions serving overlooked and underserved consumers.

I get to work with scores of credit unions, small, medium and large, that are intentionally focused on serving underserved, and overlooked consumers and communities. Though diverse, their activities of service are among the most inspiring examples of people helping people. What continues to surprise people is how well financially these credit unions are doing – they are well-capitalized, strong ROA, and double digit loan and membership growth. It’s simple: they are relevant, providing products and services everyday people need, and they are operating in an environment where they can compete and win.

“For where your treasure is, there your heart will be also”

I think our numbers are a fair place to look to see how well we are doing with people helping people. Many (most?) have loan portfolios with very high average beacon scores and very low delinquency and charge-off ratios. If fact, for some of us, it’s become a point of boasting to share with our colleagues just how high our average beacon score is and how low our charge-off ratio is. The irony is that I hear now more than ever stories of examiners telling credit unions they can afford to take a little more risk.

Since the Great Depression, there hasn’t been a better time for credit unions to energetically return to their roots of helping overlooked consumers get financial education and access to affordable credit.

Consider the economic realities of the world we live in today:

  • 55% of U.S. consumers have subprime credit [1]
  • 50% of working adults make less than $30,000 a year [2]
  • 75% of consumers are living paycheck to paycheck [3]
  • Millennials are carrying more debt and make less than previous generations [4]
  • There are more than 20,000[5] payday lending outlets and 33,000[6] predatory Buy Here, Pay Here used car lots.

Truly, if consumers ever needed credit unions, it’s today.

From a business perspective, the best opportunity for success and growth is to find an underserved market where one can clearly differentiate, compete, and win. Like sheep, too many of us try to grow and differentiate the same way: indirect loan (and membership) growth for platinum borrowers, and mission statements focused on personal friendly service. How’s that working for most of us?

Today, there are scores of successful credit unions who are truly focused on people helping people. They serve underserved lower-income, credit-challenged, and other underserved groups, such as Millennials and Hispanic communities. They know why they exist, and their “walk” reflects their “talk.” They have strong capital, earnings, and double-digit member and loan growth. They are inspiring and, believe me, if their credit union went away, the loss would be felt not only by their members, but by their whole community. Most of these credit unions fly under our radar, but they are the heart and soul of our movement. We would have an industry rather than a consumer movement without these credit unions.

Besides the passionate mission and the focused intention of serving underserved communities, what do these credit unions have in common? High average loan yields, and fee income that compensates for higher operating expenses and loan loss expenses. It’s funny, but in spite of the extra risk, their net charge-offs are frequently lower than their more risk-adverse peer group. These credit unions have developed underwriters who know how to underwrite higher risk. While others have been developing expert indirect or mortgage lenders, these shops have developed risk-based lending experts. These credit unions have front-line teams who know how to provide relevant financial education. They have certified team members with CUNA’s FiCEP[7] program. They do a very good job of balancing purpose with profit. Seriously, how many of us would pass on an average loan yield of 7 percent and average provision expense of 1 percent? But we do every day.

Why it matters

The behavior of people helping some people will not generate a strong enough advocacy message to differentiate credit unions from the banks, achieve meaningful legislative wins, or significantly increase market share. People helping some people does not inspire anyone.

In my opinion, the boldest meaning of people helping people is tied to providing affordable access to credit. It’s finding ways to help people improve their quality of life through affordable access to credit. It’s helping thin file and poor credit file consumers get access to credit for things like a reliable used car. If we don’t make more of these loans, these people will continue to end up at the predatory Buy Here Pay Here lenders and paying an interest rate of 30 percent (or more). People helping people is so much more than helping platinum credit consumers (who can go wherever the hell they want to) get an extra .25 bp off the competitors’ best rate. People helping people only becomes an authentic rallying cry when we collectively walk the talk and it’s meaningful.

Thank you Carolina’s young Protégés! You are an amazing group of future leaders (I hope we can hold on to you). I’m confident that our movement will continue in your capable hands. Thanks for inspiring me!