When the economy tumbles, the after-effects reverberate long after jobs have started coming back. Ask almost any credit union, and you’ll find they’re still having trouble convincing members and potential members to take out consumer loans.
“Credit unions have been racking their brains trying to figure out how to achieve good cost-effective organic loan growth,” says Edward Guerin, VP/credit union development at Costa Mesa, Calif.-based software provider MeridianLink. “It’s a problem that’s been plaguing credit unions since the mortgage meltdown, so you’re going back to 2007-2008.”
Fear is the No. 1 cause, Guerin suggests. “When people don’t have faith and confidence in the current economy or their job stability, generally consumers tend to tighten their belts. You tend to see a spike in savings increases and less in terms of debt acquisition. If people are thinking about buying a car in a tight economy, they’re going to wait. They’re going to squeeze out another 50,000 miles, or another year or two, out of their car before they buy a new one.”
That fear has two repercussions. First, it makes consumers far more debt-averse than usual, and second, it makes them more price-sensitive when they do take out a loan.
“Because of that, it’s critically important for us to be very competitive in our rate, because we’re losing business for 10 or 15 basis points,” says CUES member Steve Owens, VP/lending at $400 million/48,000-member Consumers Credit Union, Oshtemo, Mich. “In the past, if you were doing a loan for the member, they might not even have shopped it. They might have just come in and accepted our great rate and not checked with the bank or the credit union down the street. But now they’re doing that. So it’s important to be right there.”
But there’s only so far a credit union can go in the race to the bottom. Eventually, it has to seek out other tactics.
CUES member Keith Eiden, EVP/lending and sales at $410 million/49,000-member Superior Federal Credit Union, Lima, Ohio, says when the economy crashed, he saw a lot of his CU’s competitors going “insanely low” with car rates, just to get some business on the books.
“We chose to keep up with them, or at least try to stay in the ballpark,” he says. “And to take up some of the slack, we focused a little bit more on the commercial side. If you look at our numbers, we grew a lot in business lending in 2009.”
That year, the CU’s member business lending grew by $10 million, or 34 percent.
But the credit union needed to do something to get its consumer lending back on track despite the lean times. Eiden and his colleagues noticed that when car dealerships marketed loans, they focused on the monthly payment, not the interest rate. The credit union, they guessed, could benefit by following suit.
“We were seeing that our 60-month rate was beaten by most of the banks,” he admits. “But the consumer doesn’t focus on rates; they focus on payments, because rate doesn’t fit into your monthly budget. We didn’t have a 63-month tier, but Chase and Fifth Third Bank specifically did, and we were losing car deals to them. Our rate [on a 60-month loan] was lower, but they were going on these 63-month terms, so the payment was $10 or $11 a month cheaper. We said, well, forget this—we’ll go to 2.63 for 63. Catchy. People can really remember it. Makes for a great radio campaign.”
Partly as a result of this campaign, Superior FCU grew car loans by $1.2 million in July and August, for a 2.5 percent growth for that period and 15 percent annualized growth.
It’s innovative approaches like these—in addition to or instead of traditional marketing methods—that have helped credit unions weather the dip in consumer lending and come out stronger than ever.
