This article appeared in the April 2001 issue of the Callahan Report.
The statement above sounds great and has been the battle cry of the credit union movement since it was founded. We should care, we should be different-after all we’re not-for-profit. We should be willing to take risk and be flexible in our underwriting guidelines. We must believe that our members deserve a second chance.
Now I’ll challenge you to adhere to the above, because I believe that unfortunately, we’ve strayed from what our founders intended. Perhaps we’ve become more regulator-focused than member-focused. Today’s case study is a good example.
I’ve Served My Time
Bankruptcy is something we’re all too familiar with. Today’s case study demonstrates how someone who makes a mistake deserves an opportunity to start over. Let’s get a picture. The member is:
- 49 years old, divorced
- Renting for two years
- Has a five-year job, salary of $18,212/year
- Works a second job @ $2,000/year
- Has no debts
- Has a small checking and savings account at the credit union
- Wants to purchase a new car, a ‘93 Geo
- Amount to finance is $6,500.
She was turned down because of a debt and bankruptcy six and a half years ago. She has established no credit since. We don’t know the size of the down payment, but there must be some judging from the amount we’re financing. The member, once notified of the turndown, had her son apply as a co-signer. Here was his picture:
- 26 years old
- Renting for two years
- Has had his own company for six years, in the specialty marketing business
- Salary is over $54,000/year
- Has over $12,000 in Checking/Savings
- Drives a ‘93 Ford Probe, which is financed at the same credit union
- His credit report is absolutely perfect, total debt owed is $496.00, and credit history goes back five years.
What we have here is a classic example of a credit union member who made a mistake, acknowledges such and appears to have learned from it. She also recognizes that it’s not going to be easy to rebuild her credit-note that in the last seven years she’s taken on little debt. She has a five-year stable job and is also working part-time. In addition, she appears to have saved some down payment for the car. The real key is that she understands the credit union’s concerns that she may not be credit-worthy, and, as a result, she’s having her son, who has an outstanding credit history, co-sign the note.
Slipping Towards Too Strict
Unfortunately, instead of taking the “We’re different, We care” attitude, the credit union took the safe way out and rejected the loan because of her bankruptcy seven years ago. How do you think this made her son feel, remembering he’s a credit union member who has done substantial business with the credit union?
The loan rejection record at this credit union suggested to me that it is turning down hundreds more than it should. And this is not unusual for credit unions. I believe that members are sending us a message when one out of three Americans belong to a credit union, but only one out of eight of those members borrow at their credit unions.
CUNA recently completed a study of how credit union members perceived borrowing from their credit union. Although the scores in every area were favorable, the area in which credit unions scored lowest was “STRICTNESS.”
I believe we have a serious problem. What made us different was the willingness to listen and to take some risk, and that has been slipping away from us. My guess is our members are sending us a message. Let’s show them we really do care, and we really are different.