All businesses, including credit unions, must face a new reality. For a decade, it seems credit unions have had a build it and they will come mentality. Credit unions know they're great and assume others know it too. As Washington begins its grilling of Wall Street executives and how our economy got the way it is, it's also a natural time for credit unions to reflect.
Credit unions are cooperatives organized to serve their members, but they are also financial services businesses. Credit unions need earnings to maintain their net worth and further invest in the business. If credit unions aren't doing that, they won't survive. If they aren't fulfilling their purpose of serving members, they won't survive. At times, this can create a philosophical tug-of-war for credit unions. For example, a member has been working hard to pull themselves out of debt only to get laid off. Recent history suggests the member fully intends to pay back the debt, but how long will it take that person to find a job, and if they're already in a hole, how much longer will it take for the member to dig out? Valid questions to struggle with because if a credit union makes the wrong choice too many times, the rest of the membership could be put in jeopardy.
How does a credit union make these calls? There are credit scores and profiles to assist in this decision making, and, while it's not the most efficient way, in scenarios as described above, credit unions should get back to interviewing the member. Some credit unions are even offering job-finding assistance. In the long run, it is in the credit union's and everyone's best interest to have that person employed. However, devoting this type of time and expense isn't popular in a world where financials are keenly followed not quarterly, not monthly, but weekly and even daily at times. This type of micromanaging of numbers, which has filtered in, in part from the for-profit sector, can leave credit unions missing the forest for the trees. The credit unions philosophy dictates that they should take the risk on a member more often than not. Turn that around, however, and the individual member becomes the tree obscuring the forest. A tricky predicament indeed, but the conflict is not to be ignored.
Getting back to basics is the cleansing the industry needs. That means offering members reasonable products at a reasonable rate that are in their best interests. Not gorging on $35 fees on overdrafts that could very well amount to less than that because the market will allow it, but actually pricing for the risk involved. Credit unions should look at services that might be new to your credit union but not new to the financial services market. Student lending is a product that has been tested, but the bulk of credit unions still are reticent to enter the market. Many already do it anyway via home equities, but it's better to know the actual risk you're taking on to the degree it can be determined.
Business lending has been somewhat of an elephant in the room for credit unions. Some credit unions, as well as many other lenders, have gotten into trouble with commercial real estate loans. These loans carry high reward with them, such as all the associated fees and the economies of scale, but for that, there is also huge risk, as some are discovering. However, credit unions need not jump into commercial real estate to make business loans. Remember: Profit is not your motive. Not to say that it's not important. But, perhaps making 10 solid small business loans can be more profitable in time because 1) you've diversified your risk and 2) those 10 small business owners will each tell 10 other small business owners how well they were treated at your credit union. Credit unions aren't out to make a quick buck, but some have lost sight of that.
At the same time, credit union lobbyists are working toward expanding member business lending powers. Business lending, like many other financial services, is not new. Credit unions have been doing it since their inception. They just need to keep their eyes on the prize-serving their membership.
Credit Union Times is no stranger to facing new realities while adhering to our principles. We're considering moving some of our content behind a firewall. As a journalist, First Amendment advocate and the proud editor of this publication, our new reality is that print advertising is soft, while digital is growing. Print subscription growth has been flat, while cutimes.com readership is through the roof. We know all of our readers appreciate the value of the most accurate and fastest news in the business, but how many will put their money where their eyes are? It's an issue we're debating; just listen to this http://www.blogtalkradio.com/cuwatercooler.
Credit Union Times has been giving our product away; many credit unions do the same thing with certain services. Maybe it's time to place old-fashioned value back on the basics.
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