This century has now seen two of its biggest financial crises. The first, the Great Recession in 2008, may have been one of our own works.
The second, COVID-induced, happened to us. But they both provide important lessons as the credit union movement prepares for the future and seeks to better serve its members.
All lenders, especially credit unions, should look at borrower data from 2008 and quickly see what we could have done better. While more risk -averse credit unions are better off than other lenders, for many, the consequences of the Great Recession resulted in the loss of people’s homes and turned members ’lives upside down.
The credit union movement promised to do better during the pandemic — and it did. It advocated for endurance and skipped payments that keep people afloat. Loan unions make emergency loans and offer financial counseling.
Even the regulators on this occasion said, “Go out and help your members; just don’t let it sink or swim. ”
We now have the opportunity to incorporate this experience and empathize into our ongoing practices so we can continue to support people through financial challenges.
To do this successfully and promptly we need to step out of our comfort zone and embrace new approaches. Hundreds of credit unions, for example, are taking the designation of a community development financial institution (CDFI), which will allow them to do more to help those in need.
Programs like CDFI, along with new tools and policies, make it possible to find people who need help but aren’t getting it.
But nothing will happen unless we invest in change. Six out of 10 credit union professionals surveyed at the National Association of Credit Union Service Organizations (NACUSO) annual conference in November said their underwriting technology was outdated or outdated.
Technology is now at the point where predictive risk models can make more accurate and faster loan decisions when the numbers are clear. That frees up lending groups to work on cases that aren’t very clear.
Suppose a family experiences a financial event where one of the breadwinners has been ill for a long time.
“What do we do to keep them going so when that event is over, they are still successful? There is so much honesty associated with solving dilemmas like this, ”said Alice Stevens, vice president of credit administration at the $ 3.5 billion asset Truliant Federal Credit Union in Winston-Salem, NC, which recently earned a CDFI designation. to improve community outcomes. “And we can do it if we upgrade our tools and techniques.”
According to the NACUSO survey, 80% of credit union executives believe that increasing the use of artificial intelligence (AI) and machine learning will lead to better credit scoring. Many are working to innovate.
Most of those surveyed said they are making AI-based underwriting a priority in investing this year.
Truliant Federal recently updated the AI-based risk models for its lending. Through a pilot program, the credit union found that the tool could help increase automated approvals by up to 30% in different parts of the member communities it serves.
Credit unions and other lenders now realize they need to deliver a quick return on a decision as their members are accustomed to getting their ride-sharing and food-delivery apps. But credit union leaders owe it to their organizations to make sure decisions are careful, fair, and consistent.
I would love to see the movement’s largest credit union share how they are implementing new strategies to serve as a guide for smaller organizations that may not have access to the same resources.
We do not want another crisis. But when it comes, we want the movement to be better and more agile in how we respond.
We should devote less time to work we can automate so that we have more time to treat people facing a difficult area with the respect they deserve.
Those who have long been around know this movement can be done better. It is finally possible: We can be fast and fair.
MIKE de VERE is CEO at Zest AI, a CUNA Strategic Services alliance provider.