Consumer impacts from COVID-19, immediate responses and the opportunity ahead

As the COVID-19 crisis continues, its financial impact is more measurable. Nearly 60% of consumers already feel household financial repercussions and they expect an average budget shortage of $1,016, according to our weekly hardship survey. Those same individuals reported that they will not be able to pay their bills or loans in an average of 6.3 weeks. Steven Rick, Chief Economist for CUNA Mutual Group, estimates unemployment will peak at 25% this summer, rivaling levels from the 1930s.

Immediate Responses

While the impact is becoming clearer, the solutions are not as straightforward. Take loan deferment for example. Many credit unions are providing this tool to members on a case-by-case basis. Dozens of credit union websites have homepage graphics urging members to call if a deferral is needed. This is helpful and directly in line with the often used credit union mantra “people helping people.” But with delivery channels and call center hours reduced, members often face long wait times and a sub-standard experience.

It is important to keep in mind that these same consumers are canceling or adjusting things like car insurance, planned vacations, utility bills, and credit obligations with other lenders. They are also juggling new responsibilities like teaching their children, adjusting to remote work, and caring for at-risk or ill loved ones. As credit union advocates, we should remember that while we think of our members constantly, the reality is we own a small piece of our member’s mindshare.

Other credit unions have taken a more universal approach, giving payment deferrals to every member, whether requested or not. This is a progressive and generous offer. But credit unions should consider the downstream impacts and unintended consequences of this strategy. Credit unions should consider how the deferral will be reported and viewed by future lenders – and what that means for members. While an individual credit union can make choices on how a payment deferral is considered in the future, they can’t predict how other entities will make those same decisions.

Understanding Portfolio Health

Another recurring question has been, “how can I better understand the impact this is having on my members and their financial needs?” To do this, some credit unions have stepped up the frequency of their portfolio reviews. This allow lenders to see changes in member credit scores more rapidly, but likely leaves out some important financial indicators, which can be uncovered with trended credit data insights.

An increasing number of credit unions are finding ways to use trended data insights to dig deeper into their member base. With insights into members who continue to pay more than minimum due versus those that are building credit balances, credit unions have a new lens to liquidity. Credit unions can also identify members who may be in deferral status elsewhere and proactively help those with changing needs. These are just two examples of how credit unions can better assess member financial health and truly be “people helping people.”

The Opportunity Ahead

During the Great Recession, credit unions stood out by continuing to lend when other competitors scaled back. This allowed membership and loan portfolios to grow significantly in the subsequent decade. Many credit unions view COVID-19 as another opportunity to show Americans exactly what is meant by the phrase “financial first responders.”

This new challenge will require new solutions. Many credit unions acknowledge the gap in their existing digital offerings. COVID-19 has accelerated this need, with many credit unions shuttering branches and leaning on digital channels exclusively to deliver financial tools and services. Luckily for credit unions, partners are rapidly adjusting their capabilities to enable credit unions to deliver or optimize digital services like account opening or loan origination capabilities. By aligning themselves with these organizations, credit unions can provide needed financial services as we shift from global health emergency to the recession recovery.

Beyond digital channel evolution, economic opportunities will emerge for credit unions. As financial health moves into the forefront of American conversation, credit unions have the chance to embrace their roots and amplify their impact on the members they serve. Now more than ever, credit unions must understand what data and insights they need to proficiently offer products and assistance to those in need within their communities. COVID-19 presents credit unions with a chance to reimagine their role in community development, small business empowerment and consumer financial health.