Credit Unions Should Protect Their Members by Educating Them

They’re back! The scammers, spammers, and flimflammers are out in force once again. Sprouting like weeds following a heavy rain and equally virulent, these black hats of the mortgage business take root in the fertile ground created by rising interest rates, thriving on the confusion and fears of the borrowers who are least able to protect themselves. Concerned only about making money, and not terribly particular about how they achieve that goal, these scuzzy operators exaggerate, mislead, and even lie outright to borrowers; they bait and switch without compunction, making promises they know they can’t keep, unconcerned about the devils in the details of the loans they are offering. They masquerade as legitimate mortgage companies or mortgage brokers, but they are really predators and thieves, aggressive and unethical but also very successful, which makes them a serious threat to credit unions and their members. You can see their fingerprints clearly in the loan offers that come, usually unsolicited, via mail and e-mail, promising low origination costs and guaranteed loan approvals, insisting that “poor credit” or “no credit” won’t be a problem. Some of these messages inform recipients that the loan application they didn’t know they had submitted (and, in fact, never did submit) has been approved, requiring only “a little more information” to complete the processing. Sometimes these are not really loan offers at all but identity theft schemes designed to extract personal information from unwitting consumers. But many of the come-ons are connected to real loans, although not loans you would want friends or family members to accept. They include: * Introductory rates that start out well below market but quickly jump to market level or above – a detail these offers fail to mention. * Adjustable rate mortgages marketed to borrowers without regard for their ability to afford the higher payments that will follow. * Prepayment penalties, excessive origination fees, or deferred interest charges that produce huge (and usually undisclosed) balloon payments in the future. * “Great deals” offered to borrows who could, in fact, find much better deals elsewhere. Spam filters haven’t slowed the flow of these unsolicited offers and tougher laws won’t do much to protect borrowers from unscrupulous players who don’t pay any attention to the laws and regulations that are already in place. But credit unions can do a great deal to help their members protect themselves by giving them the information they need to distinguish between lenders and loan offers that are legitimate and reasonable, and those that are not. You can combat the shady lenders and the loan brokers operating on the fringes of legitimacy by helping your members recognize the “too-good-to-be-true” promotions for the scams they are. In statement stuffers and informational brochures, on your Web sites and in seminars, you can explain the home buying and home financing process. You can emphasize the importance of shopping for mortgages and explain how to identify questionable or dangerous loan features; you can encourage your members to compare rates and terms carefully; you can suggest that they investigate the reputation of lenders before doing business with them, advise them to ask questions and insist on clear answers, and urge them never to sign a loan document they don’t fully understand. You can encourage members to ask you about loans they are considering before they have signed a commitment. If it looks like a good deal, you can advise them to take it, but if it’s not in their best interests, you can explain why and offer a better alternative. With these and similar efforts, you can help your members become educated and informed borrowers, which is their most effective protection against the lenders that would take advantage of them. Why should you undertake these efforts? Why should you go to the trouble and expense of producing “educational” materials instead of spending that money on ads and other marketing initiatives promoting your credit union and the loans you offer? The answer is partly because ads that honestly describe your mortgage rates and origination costs can’t compete very effectively against misleading promotions promising rates and terms that seem to be a lot more attractive than yours, even if they really aren’t. So you have an obvious, vested interest in helping your members see through these schemes, because if they are sucked in by sleazy offers, they won’t be getting their loans from you. But educating members isn’t just a savvy, and arguably essential, business strategy for credit unions; it is also an obligation – an obligation that exists because credit unions care about their members. Caring about members is more than a slogan; it defines a real credit union commitment and represents an integral part of the credit union difference. Yes, that credit union difference. The difference that distinguishes credit unions from other financial institutions; the difference that deflects the attacks of those who say the credit union tax structure should be altered; the difference that explains why members are more loyal to their credit unions than the customers of other financial institutions are to the entities with which they do business. If you’re in the mortgage business, you want your members to come to you when they need a mortgage loan. That’s only reasonable. But you also value your members for more than the business opportunities they represent, and that’s an important message. It’s a message you convey, not just to members but to prospective members and to the public at large, when you explain the lending process. It’s a message you convey when you talk about avoiding high-risk loans as well as about the advantages of the loans you offer, and when you make it clear that you think helping your members avoid loan scams is as important as selling loans and financial services to them. Educating, informing, and advising members is part of the credit union philosophy; it’s an important part of who credit unions are and what they do. It exemplifies the “members helping members” concept, giving both substance and meaning to that ideal. It answers the critics who say credit unions are no different than any other financial institution. Helping your members make sound, intelligent, informed financial decisions obviously advances their interests, but it also advances yours. Because at the end of the day, anything that helps credit union members is going to help credit unions as well.