Stuck credit unions have a lending problem

About fifteen years ago, Ironworkers USA Federal Credit Union was struggling. They were small, under $10 million in assets, and facing the same pressure many credit unions feel today. The NCUA was encouraging them to merge.

But instead of merging, leadership made a different decision. They chose to focus.

They doubled down on serving ironworkers and their families, and they leaned into lending as the way to do it. They built lending policies around the realities of their members, including income volatility, seasonal work, and imperfect credit.

They did not avoid risk. They learned how to manage it, and the results followed.

The credit union grew to more than $154 million in assets. They expanded their reach nationally. More importantly, they became deeply relevant to the people they served.

They did not try to fix everything at once. They focused on one thing and became exceptional at it.

Credit union leaders today are being pulled in every direction.

Operations, technology, cybersecurity, succession planning, competition from banks and fintechs, and regulatory pressure all demand attention. For many small and mid-sized credit unions, it can feel overwhelming. The result is often the same: stagnant growth, flat earnings, and no clear place to start.

But the challenge is not a lack of ideas; it is often a lack of focus on the right thing that delivers the highest value.

I hear it all the time. Leaders are tired, frustrated, juggling too many priorities, and unsure where to begin. So let me offer a different perspective.

What if the answer is not doing more, but doing one thing exceptionally well?

Over the years, I have worked with hundreds of credit unions across the country. The pattern is clear. The institutions that break out of stagnation do not try to fix everything at once. They focus.

And more often than not, that focus is this:

They identify a clear lending niche and become expert, risk-based lenders.

This is not just anecdotal; research from the Filene Research Institute examining high-performing credit unions found that top performers consistently concentrate on a few activities that drive both growth and profitability, with lending at the center.

They do not try to be everything to everyone. They double down on what works.

Focus is not a limitation. It is a growth-and-sustainability strategy.

Let’s be honest about where the industry is today. Many credit unions are overly conservative lenders. That is driven by real factors such as fear of examiners, risk-averse boards and management teams, past losses, and lending philosophies shaped by prior experience.

But there is a cost.

Too much risk aversion does not protect performance. It suppresses it.

Most credit unions will tell you they practice risk-based lending. But when we examine the portfolio:

Across the industry, many small and mid-tier credit unions generate loan yields in the 4% to 5% range, while investment yields remain significantly lower. At the same time, institutions that lean into disciplined risk-based lending often achieve higher blended loan yields in the 6% to 8% range.

Return on assets tells a similar story. Many small credit unions operate in the 0.40% to 0.70% ROA range, while stronger lending performers consistently exceed 1.00%. The difference is often tied to an appropriate volume of non-prime borrowers.

When the loan yield is too low, it becomes harder to invest in technology, attract talent, market effectively, and grow. Getting the lending right sets the credit union up for success across the board.

You cannot fund your future with low-yield lending.

Here is what I see repeatedly.

Credit unions approve most loans that come in, but they are not actively reaching out to credit-challenged members. As a result, the pipeline never grows.

Lenders often say they are approving everything they can. Yet when an experienced risk-based lender reviews the same files, they often identify 10% to 20% more loans that could have been approved safely.

Staff attend risk-based lending training but return to a culture that does not support applying what they learned.

That 10% to 20% matters. It represents more members served, more loans booked, higher yield, and stronger earnings. Growth is not always about new products. It is often about approving more of the right loans.

The economic reality facing members is changing. According to United Way’s ALICE research, in many communities, 30% to 50% of households are working but struggling to afford basic necessities.

The middle class is under pressure. Financial volatility is increasing. And who is stepping in to meet this need? Not traditional financial institutions. It is non-traditional lenders who often charge 20%, 30%, or even 40% or more.

This creates a clear opportunity. One of the least competitive yet most impactful lending opportunities today is responsibly serving credit-challenged borrowers.

When a credit union helps a member avoid a 30% auto loan, the impact is immediate. The credit union earns the loan, the member builds trust, and the relationship deepens.

That is not just mission alignment. It is one of the highest-return growth strategies available.

It is also a strong long-term strategy, as the number of income- and credit-challenged borrowers is likely to increase rather than decrease. These consumers are abundant in most communities, including SEG and geographic fields of membership.

The strongest performers share common traits.

They lean into lending as their primary revenue engine. They serve clearly defined member segments. They accept higher but well-managed risk in exchange for a higher yield. And they invest in building internal expertise.

In many of these institutions, 20% to 30% of the loan portfolio is non-prime, supported by disciplined underwriting and pricing. That is not reckless. It is intentional.

The best-performing credit unions do not avoid risk. They manage it better than everyone else.

If your credit union is experiencing stagnant growth and limited earnings, here are practical steps to consider.

Multiple, proven resources are available:

A multitude of grant opportunities also exist for small credit unions, including resources from ACU, leagues, foundations, NCUA, CDFI programs, and even larger credit unions. These are often underutilized opportunities.

Credit unions are trying to solve too many problems at once. But the path forward may be simpler than we think.

Hyper focus on the one thing that drives both mission and margin. For most credit unions, that is lending.

And for those willing to lean into it with intention, discipline, and courage, serving credit-challenged members is not just the right thing to do. It may be the most important and most profitable decision you make.

And it is worth remembering: Ironworkers USA FCU did not set out to solve every problem. They solved the right one first, and then the rest of the pieces fell together.

If a $10 million credit union, with significantly fewer resources and examiners breathing down its neck, can overcome those hurdles and succeed, more of us can too.