For more impactful lending at your credit union, try digging a little deeper

Our guest article this issue is presented by Mr. Scott Butterfield of Your Credit Union Partner. It treats a topic that we don’t usually approach here at Mark H. Smith, Inc. That is the promotion and selling of consumer loans. However, we came across Mr. Butterfield and were impressed with his approach to a near universal challenge for small and midsized credit unions. As always, when we publish a guest author, we do so without recommendation. The opinions and suggestions are solely of the author, Mr. Butterfield, and do not reflect the position or recommendation of Mark H. Smith, Inc. You be the judge; Mr. Butterfield’s contact information is found at the end of the article.

The competition for loans has never been greater. It’s a market long crowded with traditional and non-traditional players, including credit unions large and small looking for the best options to make the most of their efforts.

In spite of drastically changing consumer social and economic demographics, most of us are still using the same old growth strategies when it comes to lending: solely seeking out prime borrowers for indirect, recapture (steal-a-loan), mortgage, and business lending. One percent new auto loan rates are common, an example of myriad “get lost in a sea of low-rate” offerings, each targeted to a prime borrower who can take their business anywhere. And while we are all slugging it out for the prime borrowers, the pool is shrinking.

What’s going on out there?

Our consumer market is changing, with three key emerging markets growing in number that collectively have thinner or sub-prime credit files:

• Millennials (18-33 year olds)
• Lower- to moderate-income consumers (earn less than 80 percent of the area median income)
• Hispanics/Immigrants

These emerging markets are underserved and for the most part overlooked. Ask most credit union leaders and they will tell you they want to grow millennials, but they become skittish when they confront a thin file. Credit union leaders will also say they want more loyal members – it’s difficult to find more loyal members than lower-income consumers or those from minority communities who receive affordable access to credit. I believe (and scores of credit union best practices bear this out) that credit unions who dig a little deeper, reaching and lending to these emerging markets with sub-prime, thin credit files, are more relevant to their membership and to their communities.

How to reach and serve these underserved credit markets

There are hundreds of credit unions that have very long and successful track records serving consumers with little or no traditional credit histories. Talk to these expert lenders and you will sense their strong determination to approve more loans for their members. They don’t give up when they pull a thin file report. They know how to dig a little deeper…. They are no stranger to including payment histories for rent and utilities into the loan decision-making process.

Just ask Teri Robinson, President/CEO of Pacific Northwest Ironworkers Federal Credit Union. Teri has been digging deeper to serve members for years. Her passionate commitment to her members is demonstrated by finding more ways to get to an approval. This has led to dramatic member development stories, strong loan growth, and higher profitability. Teri believes: “We exist to serve and educate our members; we find and consider every piece of information we can about each member to help us in the decision-making process; this includes non-traditional payment histories.”

Today, credit union leaders like Teri are looking at new ways to assess the credit worthiness of the 64MM consumers with little to no traditional credit history. Using comprehensive data and analytics, Experian partners with credit unions to continually improve ways to score and reach this underserved market. One specific and successful example is Experian’s Extended View Score, an FCRA-compliant credit model that pulls both traditional credit and alternative consumer information such as rental data and full file public records into one predictive score. This additional information helps credit unions to reach more members and get more approvals.