Looking for a ray of sunshine these days? Consider this…credit unions are in a much stronger financial position to weather the COVID-19 pandemic and the looming economic fall-out versus the Great Recession of 2007-2009. According to the quarterly Trendwatch report from Callahan & Associates, as of March 31, assets held in the United States stood at $1,663.3 billion and capital registered at $193.4 billion – double those respective positions on Dec. 31, 2007. Member relationships were also stronger than those recorded in 2007, proving that at least some lessons were learned from that recession event.
There were also some bright spots in Q1 2020 metrics. Credit unions notched the largest ever quarterly net liquidity increase in Q1 2020 to $50 billion, providing lots of flexibility for strategic moves. This liquidity enabled credit unions to extend an additional $5 billion in credit card lines in the first quarter compared to the fourth quarter of 2019.
Buoyed by consumer confidence early in the first quarter, first time mortgages accounted for over a third of the quarter’s originations. Fixed rate mortgages more than doubled from Q1 2019 to Q1 2020, reflecting historically low interest rates. But a cloud did darken overall loan growth by 1.2 percent for the 12 months ending March 31, 2020 compared to the 12 months ending March 31, 2019.
A contributing factor to the slowdown was a 0.4 percent dip in new auto loans. While auto loan penetration among members rose 4.1 percentage points from the first quarter of 2019 to the first quarter of 2020, concern about the COVID-19 pandemic and state of the economy played a role in the decreased volume.
Strategic Steps
When you’re coming from a position of strength, it’s much easier to make good strategic decisions. Let’s look at auto loan volume a little more closely. For your current auto loan customers, offering a refinancing option can be a boon for them and an opportunity for you to generate a little additional revenue. Refinancing a car loan allows the consumer to put more money towards other financial obligations, such as a mortgage, rent, or utility bills. If your customer has both their mortgage and their car loan with your institution, refinancing is an opportunity to look holistically at their portfolio.
For the customer, the biggest benefit of refinancing a car loan is securing a lower interest rate to decrease the monthly payment. Has the customer’s credit score improved or decreased since the loan was written? Make sure you fully explain the pros and cons of refinancing to secure a lower interest rate. Could they afford to keep their monthly payments the same and pay off the loan faster?
If you are unable to lower the interest rate, the customer may be interested in refinancing the loan with a longer repayment period. This could also result in lower monthly payments. Again, make sure to explain the details here, as a longer-term loan may result in paying more interest over the life of the loan.
In some cases, a refinance allows the customer to ‘shop’ for a new lender. This is a great opportunity for you to either increase your receipts per customer or bring in new customers.
Regardless of the incentive, each refinance discussion provides you with the opportunity to increase your non-interest-bearing income with consumer protection products.
Consumer protection products, like a vehicle service contract or vehicle return protection, provide consumers with the ability to either stay current on their auto loan payments, or return their vehicles with no damage to their credit, should unforeseen circumstances occur, like job loss. They also position lenders in a way to differentiate their auto loans in the market to increase loan volume and profitability through upsell options.
Whatever strategic steps you’re taking as the economy begins to open up, make sure you continue to do what credit unions do best – support your members and your community.
With more than 40 years helping clients achieve their profitability goals, EFG Companies structures its products and services to provide value to you and your members. Our unmatched client engagement model goes well beyond simple product innovation to mitigating liability through superior claims processes, and continuous training and compliance practices. Contact us today to turn economic uncertainty into another avenue for profit, cementing your position of strength.