Credit unions have a golden opportunity to reach out and capture quality profitable loans in today’s economic landscape. As Mark DeBellis states in his book, Reflections Through the Windshield: “Now is not the time to continuing doing what we have always done. In the midst of change lies opportunity. Credit unions must rethink, outthink, and innovate!”
That said, your credit union is full of potential growth possibilities. Researching and discovering creative lending and marketing strategies can spark new business simply by reaching out and trying something new, which may spark your employees’ enthusiasm, as well. One area to look at: Members who have filed bankruptcy and have been recently discharged and the potential they have for your credit union’s growth.
Let’s step back for a second. Bankruptcy used to be something of a “scarlet letter” of our day – symbolically, of course. Ever since the recession, however, it’s not quite the sign of scorn it used to be – especially for those who have faced challenges in their lives such as job loss, income loss, devastating medical issues, and/or divorce.
In an economy where layoffs remain pervasive, job loss and income loss are key factors that affect financial wellbeing. For example, people in communities across the nation who have never been unemployed and have never been faced with the inability to pay their debt are now experiencing this devastating reality. Bankruptcy provides a way back to normalcy, a fresh start. But are these fresh start consumers good for your credit union’s business?
Yes, and here’s why.
Folks who are repeat filers are the ones you want to avoid like warm, sticky molasses on a hot, humid summer’s day. Folks who have only filed once – who have faced a devastating event in their life such as job loss, income loss, medical, or divorce and always paid their bills prior to filing – are the new opportunities for you.
Recently discharged bankruptcies may be a “good risk” for your credit union. These folks have no debt, they can’t file again for up to six years, and your credit union earns higher yields on its loans. All good things.
If you decide to market to these individuals, here are some good indicators to consider in your lending guidelines that will help you identify quality profitable loan opportunities and manage your risk.
- Bankruptcy due to medical, divorce, job loss, or income loss
- Always paid bills prior to filing
- Living at the same address two-to-three years prior to filing
- Has the same or similar occupation
- Has a comparable salary or low DTI and Unsecured DTI
Folks who have experienced bankruptcy are most likely not going to openly discuss their bankruptcy experience because they deem it to be a stigma and are embarrassed. Furthermore, because some of the largest financial institutions in the nation market aggressively to these individuals, they generally don’t think to seek out their local credit union as a partner to help get them back on track.
Credit unions seeking to increase quality profitable loans and minimize risks can reach out to this sector by marketing a fresh-start program to help these folks get their credit score and their credit back on track. This new beginning means providing these folks with:
- Secured credit card (can offer a quick bounce back of credit score up to 50 points*)
- Checking with e-statements
- Auto loan 80% LTV (C Paper Rate)
- Auto loan 100% LTV (E Paper Rate)
- 1/4 % rate discount with payroll direct deposit into checking with e-Statements
- 1/4 % rate discount with automatic loan payment
- 1/2 % rate discount with payment protection
- With good payment history for12 months we will refinance auto loan at lower interest one time during the life of loan provided their credit score has improved and they have had no late pays, no additional inquiries, no new trade lines opened, and no maxed out credit cards during the previous 12 months.
With this creative strategy in mind, it’s time to engage your staff to grow loans – even for recent bankruptcy filers. Author James C. Penney stated, “It is the service we are not obliged to give that customers value most.”
Mention this quote to companies like Nordstrom, Costco, Apple, Amazon, In-n-Out Burger, etc., and they know this mantra very well. That philosophy is a big part of their success.
Do you think a bank will loan to somebody with a bankruptcy on their record? Absolutely – and with exorbitant interest rates and fees. But conducting your due diligence, the bankruptcy market can yield great results for your credit union. At the same time, you can offer better solutions to these folks saving them hundreds of thousands of dollars in interest and fees over their lifetime.
This point segues to turning your loan officers into proactive financial partners, such as never denying a loan again. Try deferring it. A denied loan is a lost loan opportunity for life, while a deferred loan is a future loan opportunity. Always focus on what you can do for the member today like reviewing their credit report and pointing out where improvements can be made to avoid another financial snafu. In fact, you can steal every loan opportunity off their credit report that isn’t a credit union loan. It’s called opportunity.
An ugly duckling consumer with a low credit score can very well be a beautiful swan for your credit union tomorrow with your help. And believe me, there are people out there looking for financial help to get back on the right track and rebuild their credit after a black eye such as bankruptcy.
You can proactively teach them how they can manage, protect, and raise their credit score for future loan opportunities. Be a trusted financial partner.
To achieve these goals of being a trusted financial partner to spot and help financially distressed consumers, you need to:
- Establish a marketing plan to market to this sector: a monthly report from the credit bureaus listing all bankruptcies discharged in the last 30 days
- Train your loan officer to become financial solution partners
- Offer free credit score analyses (CSAs)
- Offer one-on-one consultations
- Offer Credit Score Management Seminars (one-hour lunch and learns) to businesses in the community
So what are you doing differently to increase loan growth and profitability? Are you stepping out of your comfort zone and looking for new opportunities?