Loans That Improve Lives

A New Hampshire cooperative offers credit-building products that break the payday loan cycle.

In a world that offers financing options for just about everything, credit unions are encouraging members to think about new ways to put funds toward their most critical asset their own future.

For 3Q 2012, St. Mary’s Bank ($759.1M, Manchester, NH) posted annual loan growth of 11.69%. That’s almost three times the rate of growth for its peer group, according to Callahan & Associates’ Peer-to-Peer Software. It also boasts an average member relationship $14,217 that is nearly twice as high as the average for the state.

Callahan & Associates |

Generated by Callahan & Associates Peer-to-Peer Software.

Our success is primarily a combination of improved consumer confidence coupled with some pent-up demand, says Steve Macek, senior vice president of consumer lending.

In many cases, St. Mary’s loan activity is the result of pure necessity.

The average age of vehicles registered in New Hampshire is older than nine years, Macek says.Some consumers are getting to a point where they just can’t put off [buying a car] any longer.

With eight branches and 175 auto dealer partners in the state, St. Mary’s does derive much of its lending success from automobiles. In third quarter 2012 it posted 27.7% year-over-year growth in new autos and 20.3% year-over-year growth in used autos. The credit union also posted 9% YOY growth in fixed first mortgages and 15% YOY growth in unsecured loans.

We look at our pricing points to make sure they’re better than banks and as good as other credit unions, Macek says. Then we temper that against an underlying theme of no margin, no mission.’ We can’t be the lowest on certain price points because one size doesn’t fit all. We’re out to satisfy the needs of members but also the organization.

That’s why three years ago, while still in the midst of the great recession, St. Mary’s turned away from the payday loan alternative product it had historically offered in favor of two credit building products.

The payday loan alternative was too restrictive and we felt it wasn’t providing a strong enough benefit to our members, Macek says. We wanted struggling members to have a chance to rehabilitate their credit, mainstream their finances, and qualify for larger products like an auto loan.

For those with little or no credit history, St. Mary’s unsecured Credit Builder loan offers up to $500 for 12 to 24 months with a 7.99% interest rate. If the member makes on-time payments, the credit union reports that activity to the credit bureaus and offers an interest payment rebate to the member.

It’s a nice carrot for folks when they have that extra incentive to pay, Macek says.

For those whose marred credit history necessitates a second chance, St. Mary’s secured Credit Builder Plus loan offers up to $5,000 for 48 months at the same 7.99% interest rate. The credit union places Credit Builder Plus funds into a CD as collateral until the member pays off the loan. It also reports the loan’s payment history to the bureaus to enhance the member’s credit standing.

It’s kind of a forced savings product, Macek says. And although it might be a little more challenging for someone to come in and secure the funds upfront, it will ultimately give them the financial track record they’re looking for.

As of November, the credit union had originated approximately $140,000 in 280 Credit Builder loans and approximately $127,000 in 147 Credit Builder Plus loans. More than 600 loans of both types are currently outstanding.

These products encourage members to take a longer view of their financial situation, and establishing set terms as well as financial literacy and awareness requirements is critical.

These are not the type of chronic, revolving accounts that people can never get out from under, Macek says. Members have a real sense of closure and accomplishment afterward, which is what differentiates our product.

Because St. Mary’s absorbs the finance charges with one product and maintains a low rate of interest on the other, neither product is a major revenue driver. The unsecured product also has a slightly higher delinquency rate than other types of consumer loans. Yet these products are an important stepping stone in teaching members how to safely and successfully take on more mature, profitable products.

It’s about getting members in the position to get the best deal possible, whether that’s with us or another institution, Macek says. But once they do get to that point, we’ve already gained their trust and loyalty.

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