Set Up Your Credit Union for Limitless Loan Opportunities

Are you taking full advantage of your credit union’s lending potential? Regulations and compliance rules continue to change as the lending landscape shifts toward new demographics, namely millennials. This newer market segment operates in a completely different manner than its Generation X and baby boomer counterparts.

For one, they lean into fintech. Young Money cited 92% of millennials choose a financial institution based on digital services and 30% have at least one financial product not offered by their financial institution. Folding them into your lending program can make a huge impact on your credit union. All three of the above generations want to spend money, and you have the capacity to make it happen. The key lies in knowing each demographic, yet that can come off as generic and non-actionable. To be specific, you must know your members and know them well.

Make sure your board and staff knows the community and its nuances. Think in broad terms first. Have large employers entered or exited your space? How has the community makeup changed in the past five years? What about the past decade? Are there any economic factors impacting your community, city or state? Understanding large factors that shape your community enables you to pinpoint member lending needs with laser focus.

So Many Lending Opportunities

Of course, automobile and home equity loans immediately come to mind. However, what about personal loans? There are a broad number of reasons your members may need a personal loan. Take a look at the following. A personal loan could serve as funding for:

• A new pet
• Debt consolidation
• A vacation
• Moving
• Enhancement surgery
• Funeral expenses
• Health and medical needs

Again, the key to marketing these products and services is in how well you know your members. If there was a recent death in the family, would one of your members benefit from a family support loan? Do they know that health improvement loans could cover prescriptions and wellness visits beyond the cost of surgery? If they are considering a pet, let them know the full scope of your pet loan. For instance, if it covers obedience training, that’s great information to pass on. It may be helpful to perform a needs assessment if you have not done one in a while. Not only will this help target members with appropriate products, it could increase your credit union’s membership since you may discover underserved areas or points of focus.

Advantages of a Personal Loan

Most often, when an unexpected expense occurs, members turn to credit cards for answers. And while these provide short-term relief, are they really the best option?

Interest rates are high, and clearing the debt will take decades if you only make minimum monthly payments. This is where any of the personal loan products mentioned earlier become a much better solution, especially if your member only needs a small amount (like a $500 loan).

Let’s use pet loans as an example. Most veterinarians do not offer payment plans, so members turn to credit cards for unexpected pet-related expenses. However, with a pet loan, expenses like surgery, prescription medicine and medical supplies may be covered. An affordable payment plan can be established and the interest is usually a fraction of what you would expect from a credit card. This line of thinking can be applied to each product mentioned on our list. Communicating the value of something like an enhancement surgery loan opens up an entirely new solution your member may not have considered before.

More Opportunity = More Compliance

Of course, compliance must be maintained. This is why it’s a good idea to have a forms provider that is not only familiar with personal lending, but with different types of personal lending products. Compliance language is not necessarily one-size-fits-all in regard to personal loans. There are several factors to consider.

Does your forms provider prepare your consumer lending documents with the appropriate legal language to make sure you offer these creative types of loans in a compliant manner? Your forms supplier should help your credit union make sure language is inserted to show what is covered and not covered under each loan. What about disclosures? Payment terms and disclosures are required and forms integration can be tricky. Forms should be easy to integrate with any data processor to offer you flexibility while maintaining regulatory compliance.

Look for a complete line of consumer lending documents that can be fully customized with your credit union logo and other branding elements. All forms of notices, agreements and disclosures should be included with every consumer lending document package.

Helping You Comply

Remember, new fair lending guidelines implemented in January 2018 have led compliance examiners to look for risk associated with consumer loan pricing. Their current focus is on originators and underwriters who use broad discretion when setting interest rates or fees. In addition, they focus on credit unions that have no set rate sheets or pricing guidelines, and those that fail to document pricing exceptions or monitor for potential pricing disparities.

The idea behind the focus is simple. Credit union boards and executive senior management team members are required to have an understanding of the level of risk contained in their portfolio. Therefore, make sure your policies and procedures are up to date. You should also have a risk monitoring program that is proportionate to your permitted level of lending discretion. Finally, conducting a periodic self-fair lending assessment/audit is helpful to make sure your lending is compliant and nondiscriminatory.

Richard Gallagher is CEO of Oak Tree Business Systems, Inc. He can be reached at 800-537-9598 or clientservices@oaktreebiz.com.