Smaller Credit Unions Respond to COVID-19

When the coronavirus pandemic hit and the government rushed to pass out money to fend off a looming economic crisis, those with the knowledge and connections to get someone on the phone who could get the funds did so. Big corporations quickly swooped in, pocketing millions while small business owners and entrepreneurs were still rummaging around looking for their financial institution’s phone number.

As the initial shock of the pandemic-imposed shutdown passed, a lot of consumers who may have never given much thought to those branches labeled as “credit unions” suddenly took another look.

Phones started ringing, online banking business shot up and a new generation of credit union members was born.

Credit unions across the country have stepped up to help their communities, as well as offer new programs, emergency assistance and – in many cases – teach longtime members a whole new set of banking skills to help them deal with a new reality.

To get a sense of how things played out for smaller and mid-sized operations, CU Times spoke with executives from two Michigan credit unions: Martin Carter, president/CEO of the Lansing-based Astera Credit Union ($160 million in assets, 15,798 members); and Ruthann Varosi, marketing manager for the Warren-based Extra Credit Union ($250 million in assets, 19,541 members).

CU Times also spoke with Larry Nichols, CEO of MDT, a CUSO that began in Michigan in 2003 and now has 149 employees servicing 116 credit unions in 29 states, with data centers in Michigan and Montana.

“We provide the technology for everything you can do at a credit union,” Nichols said. “That could be mobile telephone lending, remote deposit capture, debit card, credit card, internet banking, mobile banking – everything a credit union wants and needs from a technology point of view.”

Nichols recalled that his company was well positioned to handle the surge of demand from its credit union clients as the pandemic shut down the country.

“We were already very mobile,” he said. “The nice thing about the way our company is designed is that every employee already had a laptop and all the software they needed, and they all occasionally work from home; we have a lot of employees in 11 states around the country so we were used to being remote. We were ready.”

He added, “Two to three weeks prior to the lockdown we may have only had eight to 10 people in the office anyway, so when a credit union called in they didn’t know whether we were in the office or not.”

Even so, Nichols said his company had to move fast to ramp up capacity.

“The first week of the pandemic we saw a surge in remote access because all of our clients were now working remotely, so there was some slowdown,” he said. “Then online transaction volume increased as well. So we doubled every digital channel 50 to 100%. We saw a 50 to 100% increase in our electronic transfers, a huge influx since the [credit union] lobbies were shut down. Prior to the pandemic, we were equipped to handle about 1,500 employees on VPN [virtual private network]; we increased that to 14,000.”

MDT also boosted security by making Cisco Technology’s DUO two-factor authentication system available to all clients.

“We did all of these increases without charging our customers anything,” he said.

Carter said his credit union received a lot of requests for help in getting Paycheck Protection Program loans from the Small Business Administration from new and existing members.

“There are two aspects on who we’re helping out,” Carter said. “One is the small mom-and-pop shops that have less than five employees. Then there are the larger businesses that weren’t able to access and submit PPP applications through their banks, so they came to us. The average amount of Astera’s approved PPP loans is running at $18,000.”

He added, “Our PPP applicants run the gamut from small jewelry shops to landscaping companies. What happened is that when they were shut down, they immediately lost most of their business revenues. They needed funds to sustain and pay their employees.”

“We got a lot of requests from people who were not members but heard we could do PPP loans: 70% of our approved loans are for businesses who are new members,” he continued. “We didn’t have much of a commercial business function prior to COVID, then when word got out that we are an SBA approved lender, and a lot of small businesses came to us; the average was less than five employees.”

So far, Astera has loaned a little more than $6 million in PPP loans.

“Out of 123 applications, 117 were approved,” he said. “$5 million was for people who were not prior members.”

Extra’s Varosi noted, “We are strictly consumer-driven loans – commercial is not a big part of our business, so there was no way to really get that up and running.”

The PPP program, Varosi said, “really benefitted credit unions that have small business loans, and allowed us to concentrate on our consumer loans.”

“I’m still getting a lot of new business,” she said. “From the first moment our call center was inundated with calls – I think driven by concern of the unknown to a certain extent; you couldn’t stop it.”

Like credit unions large and small across the country, Astera and Extra have both offered emergency loans and deferrals, and promotions allowing borrowers to skip a payment.

“We’ve had a significant shift,” Varosi said. “Auto loans died in April; they were our driver of loan value prior to March. There’s been a huge shift to home equity loans, mortgages – a huge amount of people are buying houses now. Interest rates are low, people that were looking are ready to buy … this time of year is really mortgage season.”

In addition to extending its skip-a-payment service, allowing members to use it three times a year instead of twice, Varosi said Extra also developed an emergency unsecured relief loan, available only to members, to cover three months of wages.

“Our members have been incredibly receptive to the product,” she said. “We loaned $280,000 for 58 members to help with short-term needs.”

At the beginning of the shutdown in March, Carter said Astera approved letting members avoid interest and late payment fees for up to three months, and is offering emergency assistance loans of up to $2,500 at no interest for the first three months.

“We’re also communicating right up front: If you need help, call us and we’ll work with you on extensions,” he said.

Varosi added, “The lenders have been fantastic, and in general our members have been really satisfied, and taking advantage of options like call centers. Only about 6% of our loans were deferred; we were mostly answering questions about how [members] could handle payments, [they were] interested in knowing all their options. It’s easy for a mass amount of people to turn into chaos if they don’t have enough information. You have to keep members informed, and one thing credit unions do better than anybody is connect with their members. When you give someone information, it calms their nerves.”

Carter agreed: “We definitely saw a spike in call volume when we went through the shutdown. Then it tapered off with people calling in, wondering what to do with loans. We had a tremendous increase in panic deferrals; it exploded when the stimulus started, with people wondering how to access it.”

And a lot of people were seeking that access, Nichols said.

“We’ve been tracing statistics: Our active voice response capacity doubled from 55,000 a week to 110,000 a week,” he said. “Everybody was checking their balances, with a lot of members checking through interactive voice response. In addition, we saw a surge with mobile access – more than 60,000 were using mobile banking.”

Carter speculated that older members’ banking practices were likely to have undergone a long-term change.

“We definitely have an older demographic; our average member age is in the high 50s: 57, 58,” he said. “We have very heavy office transactions as opposed to some others; it’s definitely been a challenge getting people to move into the technology transactions.”

Now, he said, “there’s a lot more volume in our electronic channels, a lot more people using mobile banking solutions, they’ve gotten used to coming through the drive-thus – a lot of people never used them before. We’ve really been talking to them about moving from in-person to electronic [banking].”

Nichols added, “We don’t touch the members that often, but given that credit unions are community-based, probably on average the demographics are more to the older ones. When we saw such an upswing in digital use I’d say it was probably people who were uncomfortable using tech. Now, the call centers are selling these members on the benefits of the digital channels.”

“Especially with loan applications,” Varosi added. “The ones we’re taking online have gone up significantly. People rely on the online services more now and have confidence in the service. Maybe people thought it wasn’t reliable previously.”

“Even on the back-end we’re hearing about so much more use of e-signature,” Nichols said. “Prior to this crisis it was only maybe 20%; now it’s like 95%.”

Varosi continued, “If you have to set up your [in-person] closing or something, that’s three or four days out. If I send you a document to sign online, that money could be in your account the same day. I think we’ll see more of that in future now that members know it’s out there, and so much easier for them.”

Going forward, Carter said his perspective is his credit union will see less office transactions, less need for tellers, more consultants, more video interactions, more appointments and less walk-ins – “a new sense of normal, [with] less transaction traffic.”

“People will become addicted to these behaviors, I think,” Nichols noted.