Balancing Growing Loans, Shrinking Debt
When NuMark Credit Union held a seminar last fall on managing and paying off debt, Linda Krakora was taken aback when a smartly dressed, older couple walked in the door.
“I even asked them ‘are you in the right place,’” recalled Krakora, the training and development manager at the $187 million credit union in Joliet, Ill. “They said they were. Never had any debt but a company closed down, and they got a hold of some things that led to some problems.”
While a mix of people from all over the demographic gamut continue to attend NuMark's financial education sessions, Krakora said over the past two years, she's noticed many more consumers in attendance are closer to retirement.
On any given day, in any part of the country, somewhere, a credit union is gearing up to host a seminar on credit scores, retirement 101 and likely, one of the most popular subjects – paying off loans and other pieces of debt.
Still, there might be an unspoken irony lurking beneath all of that good will: Is there a conflict between credit unions helping their members reduce debt while keeping increasing loan volume? If so, how do credit unions strike that balance?
“Financial education and aggressive lending can and should go hand in hand,” said Dennis Dollar of the consulting firm Dollar Associates LLC in Birmingham, Ala. “There is no inherent conflict for credit unions in wanting their members to borrow often from them and to manage their loans well within their own well-understood financial capacity.”
In fact, without a commitment to financial education, Dollar said many borrowers will be one and done with a charge-off and a severed relationship with their credit union.
“Effective debt management education helps members handle their loans well and be in a position to borrow again,” Dollar explained. “Credit unions are not payday lenders who thrive on their customers’ lack of knowledge about what they are doing. Just the opposite. Credit union lending programs thrive the more informed the member.”
NuMark doesn't want to grow so fast that it comes at the expense of its members, said Kari Endres, marketing director. Instead, it prefers to see credit union growing with its members.
“When you take a look at debt, we want them to have a healthy amount but not get in over their head,” she said. “I think it goes back to why we’re different from banks. We have a bottom line, too, but we’ll say ‘no’ to a loan if it's not in the member's best interest.”
The lending landscape has widened for credit unions as loan growth continues on an upward trend. According to CUNA Mutual Group's March Credit Union Trends Report, total loans were up nearly $45 billion over the past year with first mortgages and auto loans accounting for 93% of the gain.
The industry is in its best growth performance since September 2008.
Meanwhile, NuMark had more than $123 million in total loans and leases, according to its December 2013 NCUA call report. The credit union had 99 total reportable delinquent loans totaling $1.6 million and $1 million in charge-offs. Sixty-five members filed chapter 13 bankruptcy and 28 filed chapter 7 bankruptcy year-to-date.
Krakora said NuMark's financial education seminars such as last fall's debt management session exposed members to some surprising stats, including an average household credit card debt of more than $15,000.
When asked to share his thoughts on how credit unions want to help their members pay off debt and grow loans at the same time, Steve Macek, senior vice president/director of consumer lending at the $772 million St. Mary's Bank in Manchester, N.H., acknowledged he was struck by the irony.
“To grow the portfolio, you have to put people in debt,” Macek said. “But we offer risk-based pricing which is developed over six tiers throughout a credit score band range. We also lend to different debt-to-income ratios and loan-to-value ratios. Borrowers must have the capacity to pay.”
Macek said a member denied a loan can appeal the decision. In 2013, about 36 reversals occurred, he said.
St. Mary's Bank amassed $580 million in total loans and leases as of December 2013, according to its NCUA call report.
“Loan growth for the sake of loan growth is not what we’re all about. By blending the book of business and lending through merit-based product types, we’re able to achieve a balance and help a lot of people that would have been overlooked elsewhere,” Macek said.