Financial counseling and education: Choosing the option that’s right for you

Financial counseling and education programs are fast becoming a standard member service offered by credit unions across the country.  In fact, according to data from Callahan & Associates, currently one out of every three credit unions offers some type of financial counseling to members.

Why are these types of programs so popular?  The answer may differ by credit union.  Some love offering their members proactive financial education and assistance because it’s in the best interest of the members.  It’s part of their credit union mission and is the “right thing to do.”  Others see the program primarily as a service that helps improve the efficiency of their collection efforts.  Still others value the program as a tool to help members qualify for loans and other credit union products.

Benefits to Consider
Credit unions find that providing their members with financial counseling is advantageous for many reasons.  Not only does counseling educate members on basic financial management, but it can also help them reduce debt, rebuild their credit and increase their assets.  Additionally, counseling can deter members from seeking alternative financial services, such as payday lenders or debt settlement companies, which can detrimentally affect their credit while failing to address the root of their financial troubles.

Credit union employees appreciate having a resource to which they can refer members who need financial assistance.   A financial counseling program can be particularly useful to the lending and loss mitigation departments, where counseling can be an alternative option in the loan denial and collection processes.

And providing financial counseling to members can benefit the credit union’s bottom line.  It builds long-term loyalty, puts members in a better position to take advantage of credit union products in the future, and helps reduce delinquencies and loan losses.

If your credit union is considering implementing or enhancing a financial counseling program, consider the pros and cons of the following approaches.

In-House Counselor
Some credit unions designate an employee to counsel members directly.  The employee may counsel full-time or set aside a few hours each week for scheduled or walk-in appointments.  Typically, in-house counselors will assess members’ financial situations and explore options for getting members back on track to financial independence.  Often, in-house counselors complete a certification program such as CUNA’s Financial Counseling Certification Program.

This option allows credit unions to control the counseling program and customize it.  However, an internal counselor is not able to help members develop a repayment plan with concessions on non-credit union debts.  Also, they must ensure that the in-house counselor receives ongoing training and is truly a financial counseling expert.

Credit Counseling Partnership
Other credit unions partner with a non-profit credit counseling agency to provide their members with financial counseling, education and debt management services.  These agencies often have vast resources available to assist members, ranging from education content and social service referrals to specialized counseling programs and holistic debt management programs.  Usage and outcome reports are a common feature of these external partnerships. Cost, service and support will vary by agency.  Some may even supply program marketing materials and conduct ongoing training for credit union staff.

This option enables credit unions to offer professional counseling over extended hours, making it a convenient option for members.  Credit counseling partners are often willing to customize the program to meet the credit union needs.   And credit counselors can provide members with holistic repayment plans that include all of their debts, often reducing interest rates and eliminating fees.  This holistic approach is critical to ensure that the repayment program is realistic and sustainable.

The anonymity of contacting a third party may appeal to some members and even credit union staff, who are hesitant to discuss financial troubles with their credit union.  On the negative side, there are typically fees associated with an external partnership.

When considering this model, it’s important to research and select a reputable non-profit credit counseling agency.  Ask other credit unions if they can recommend any potential partners.

Hybrid
Credit unions may choose to combine features of both the In-House Counselor and Credit Counseling Partnership models.  For example, an internal counselor may provide members with budgeting and financial education.  And if a member needs assistance with debt management, the in-house counselor would refer them to an external credit counseling partner.  Another example is contracting with a credit counseling agency to meet with members on-site at the credit union either part-time or full-time.

Next Steps
When implemented correctly, a financial counseling and education program will benefit your members, your employees and your credit union’s financial performance.  Take some time to seriously consider your options and what makes sense for your credit union.

Determine how counseling supports your strategic plan.  Check out some potential credit counseling partners.  Talk to some of your colleagues to find out what other credit unions are doing in this area.  Then conduct your own due diligence.  The payoff could be big for your members and your credit union.