"It's not like credit unions are being beaten on their rates or their service," Wai observed, "because other lenders aren't making any loans either. The problem is with the loan demand. There isn't any."

Wai laid the responsibility for the low loan demand on the ongoing job situation. As long as credit union members are losing their jobs or fear they or family members will lose their jobs, they aren't going to take out loans, he said.

Hampel put the responsibility primarily on the debt load that he said the household sector as a whole built up over the last 15 or 20 years and needs to be repaid before loan demand improves.

"For the last 15 years, the household sector took on debt at an unprecedented rate and that is going to take a while for them to draw that down," Hampel said. "It took 15 years to build up, and I don't think it is going to take that long to draw down, but it will take a while maybe as long as three to five years."

Hampel and Wai suggested credit unions adopt a different set of strategies to cope with the new environment, ranging from beefing up their efforts to attract more members to trying to deepen their loan penetration among existing members, either by making new loans or by refinancing higher cost or more poorly serviced loans the members already have.

The two economist also suggested other longer term strategies that credit unions might consider adapting to cope. Wai noted that some credit unions cut costs and adopted efficiencies that they imaged they would only have to keep in place temporarily. Now those credit unions might want to make those cost-cutting measures permanent, Wai said.

Hampel declined to offer any specific advice on how to attract new members or increase loan penetration, noting that each credit union will know its own members and circumstances best. But he did endorse the broad general approach of either bringing in new members or increasing loan penetration with existing members. Fortunately, Hampel observed, credit unions generally have fairly low penetration of their existing members loan profile and could offer them very attractive terms for either refinancing any existing loans or finding a way to finance some long delayed necessity like home repairs or a used car.

Wai also observed that member business lending would likely pick up among some credit unions that are willing to invest in building up their expertise in this area. Even with the existing cap on credit union business lending, many credit unions have not yet begun to approach their member business lending cap.

"Business lending is a type of lending right now where there is strong demand and not a lot of competition from other lenders" Wai said. "It can be a real opportunity for credit unions willing to learn how to handle its idiosyncrasies," he said.

But both economist said they were optimistic for the loan growth in the longer term. Once the excess debt had been wrung out of the system, households will be well positioned and maybe even eager to start borrowing a bit again. Maybe not as much as before but at least more than they are now.

Until then, Hampel and Wai said credit unions might take a little consolation that the loan situation is not worse than it is, that while loan demand might have fallen off, delinquencies and defaults have not spiked worse than they have, they said.

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