How To Serve Members With Sub-600 Credit Scores

A checking account with risk-mitigating features keeps Langley FCU’s losses at just 7% of its income.

In April 2015,Langley Federal Credit Union ($2.2B, Newport News, VA) launched a novel idea suggested by a staff member who thought the credit union was denying checking accounts to too many potential members with low credit scores.

Why couldn’t Langley FCU offer a separate product that gave members and the credit union what they both needed: checking services with controlled risk.

It was a great idea, and we ran with it, says Deb Vollmer, Langley’s senior vice president of branch services.

An Essential Checking Product

Langley believes a checking account is an essential aspect of a healthy financial life. Often, unbanked and underbanked individuals fall victim to high-rate predatory financial services that suck them into cycles of debt.

With this checking account, which the credit union has dubbed Essential Checking, Langley hopes to provide stability to members who need it the most.


langley FCU
Data as of 06.30.16

  • HQ: Newport News, VA
  • ASSETS: $2.2B
  • MEMBERS: 245,134
  • BRANCHES: 19
  • 12-MO SHARE GROWTH: 11.30%
  • 12-MO LOAN GROWTH: 15.40%
  • ROA: 0.54%

The checking account is designed for members with credit scores lower than 600 who don’t have a bank account and need a safe, non-predatory avenue to store their monthly Social Security or direct deposit payments.

That’s the service aspect. As for risk, the credit union built in several non-negotiable features to deflect risk.

First, Langley eliminated the ability for members to conduct ATM and debit transactions in an offline mode.

When the credit union is offline, the system can’t determine how much they have in their accounts so it will not allow a transaction, Vollmer says.

Additionally, these account holders cannot present two-party or personal checks because they expose the credit union to too much risk.

Langley doesn’t allow remote deposit capture or service center access for these accounts, either. Account holders may access courtesy pay, but that is limited to $250 and only available after the account has been open a certain amount of time.

These accounts are for members who just need an account, Vollmer says. We’re targeting people who have direct deposit and want a basic checking account.

Numbers And Next Steps

As of third quarter, Langley has opened more than 6,000 essential checking accounts with approximately $700,000 currently on deposit.

But Langley doesn’t want members to remain in this product forever. And to help make that transition easier, the credit union offers a credit-builder loan for members who want to restore their credit.

Members can take out loans of up to $1,000, which Langley FCU deposits into a secure savings account. The funds stay in that account until the member pays off the loan. When the loan is paid off, members have $1,000 in savings and a recent positive repayment history.

The credit-builder loan is a great complement to Essential Checking, Vollmer says.

But even in and of itself, Essential Checking is profitable. According to annualized statistics from Vollmer, Langley expects to derive $1.8 million in income from it. The credit union projects losses of approximately $132,000.

It has far exceeded our expectations, Vollmer says. It went from a suggestion from a staff member to a viable product that serves a group of members I don’t think a lot of institutions would be willing to grant checking accounts to. It’s a valuable service to underserved individuals.

It went from a suggestion from a staff member to a viable product that serves a group of members I don’t think a lot of institutions would be willing to grant checking accounts to.

With losses at current levels, examiners have remained mum on the product, but the credit union has still learned some valuable lessons.

Namely, the largest losses in the portfolio have all been tied, in some way, to rental cars.

Either someone did not return their rental car or they wrecked the car, Vollmer says.

The losses have not been significant, but Vollmer says it is a lesson learned and something the credit union continues to monitor.

Langley FCU’s most notable lesson, however, is on the operational side. It learned it can quickly and successfully push a product to market.

When the staff member suggested the account, it would have been easy to say, We are not willing to take that risk,’ Vollmer says. But we thought outside the box and decided there was a way we could control all of the things that made this a riskier service. That’s why this has been so successful.

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