A Case Study in Friction-Free Lending

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When the pandemic first hit, credit unions had to close their doors, and car dealerships shut off all their lights for months. We all panicked about lending. I clearly remember people saying, “Our members prefer to borrow in person. We can’t possibly hit our lending goals with our doors closed.”

I am sure many other credit unions had similar conversations as they prepared for the worst. Oddly, the opposite happened. Credit union loan portfolios grew overall. So, what gives? Many people were wrong about their members; they will borrow using perceived unconventional methods. Recently, one credit union decided to continue to ride that wave of change.

What does your core do for you?

Calhoun Liberty Credit Union sits smack dab in the middle of the Florida panhandle, about the same drive to Tallahassee as driving to the Gulf of Mexico in Blountstown, Florida. It’s a quaint town with a population of 3,300, give or take depending on the time of the year.

With a median age of 38 years old and a median household income of $38,000, it’s a typical small American town with people who need easy access to funds like in any other town. The credit union was looking for a way to simplify the process of putting small loans in their members’ hands without the manual work of reviewing credit reports, taking applications, and filling out paperwork—the standard approach.

Their core processor offered a new, simplified loan program. It was essentially a pre-screened offer where the credit union made decisions about relationship-based parameters, coupled with credit bureau scores if desired, and generated a list of members to extend a guaranteed offer to in online banking.

The member receives the offer, clicks a button to accept, reads the disclosures, designates which account to fund, and signs their loan documents, all without leaving their couch. For the credit union, this takes the cost to acquire a loan to nearly zero while growing their loan portfolio.

Regarding the new approach, Shelly Burns, Chief Lending Officer, said, “This new program provides CLCU the ability to grow our loan portfolio without growing our loan production staff. Hands-off lending! The product allowed members to accept, execute their loan agreement, and fund to their CLCU deposit account!”

Adapt your lending

If the pandemic and subsequent lockdown taught credit unions anything, it’s that our ideas of how we must do business are antiquated. Face-to-face-everything is becoming a thing of the past. We check ourselves out at Costco, buy clothes online before we try them on, and buy cars without ever seeing or driving them in person, only to have them shipped to our house and dropped off in our driveways.

As the world evolves, credit unions must do the same. So why not the lending process? Calhoun Liberty increased its unsecured loan portfolio by 7% in one month with minimal manual work. Age does not seem to matter; 33.6% of the loans were accepted by members over 50. In addition, credit does not seem to matter, as 63% of the accepted offers were credit scores over 680. Our ideas of who does and does not need loans and who would be willing to use digital means to get them are out of date.

Let’s take another angle that is very relevant in today’s “quiet quitting” world. It is not easy finding good loan officers today. Hiring is a challenge and turnover is expensive. So, finding an alternative way to lend without increasing your headcount could dramatically increase your return. Burns stated, “Our goal for 2023 is to utilize 1-Click Offers quarterly to continue growing our loan portfolio with a smart and simple alternative product. It is less expensive than hiring lenders to grow your loan portfolio.”

Calhoun Liberty managed to turn over a new lending leaf, what’s stopping your credit union?

Looking ahead

For a long time, credit unions have talked about meeting members where they are and, in the same breath, talked about improving members’ financial lives, all while continuing to do most of their loans in person. It would seem those two ideas are contradictory to each other. To “improve” something, you must enhance it by changing traditional ways and making it more accessible.

So, what really must happen to meet the members where they are requires a change of mindsets and habits for both the credit union and the member. That might be the more challenging part, or it may have been until recent events taught us that we had to adapt. We did, and it worked. We have changed our systems, introduced virtual tellers, improved mobile banking, etc. Now it’s time to do the same with our lending systems.

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