American Consumer Reality Check How Credit Unions Can Help Office of Small Credit Union Initiatives...

American Consumer Reality Check

How Credit Unions Can Help

Office of Small Credit Union InitiativesMartha Ninichuk, Deputy Director

Credit Unions Can Help


Factor In…Recent Economy

Consumers Experiencing Hard Times

Public who says they are in the lower or lower-middle classes rose from 25% in 2008 to 40% today.

*Jan 2014 survey of 1,504 adults

30 million workers ages of 18 and 64 live on $18,800 per year.


Young Adults

• Fully 37% of 18- to 29-year-olds are unemployed or out of the workforce, the highest share among this age group in more than three decades

• 27% of adults, ages 40-59, are the primary financial supporters of a grown child

• 3 in 10 young adults have lived at home during the economic recovery

Increased Underserved Market


United States underbanked financial services are a $78 billion marketplace that encompasses close to two dozen products

and services provided to over 68 million consumers.

CFSI 2011 Underbanked Report

Banked and Unbanked• 17 million adults live in unbanked

households• 51 million adults live in

underbanked households

www.fdic.gov/householdsurvey

http://www.fdic.gov/householdsurvey




Use of Alternative Financial Services

• One-quarter of households have used at least one AFS product in the last year

• 1 in 10 households have used two or more types of AFS products

• In all, 12 percent of households used AFS products in the last 30 days


What are Alternative Financial Services?

Financial services offered outside of the traditional banking system

Two general categories: 1. Transactional - Check Cashing, Money Orders,

and Bill Payment2. Credit – Payday Loans, Rapid Anticipation Loans

(RAL), Rent to Own, Buy Here Pay Here, Pawn Lending, Auto Title Lending


Why Alternative Financial Services?

• Transactions are done all at once• Costs are transparent and easily

understood• Know what they will end up with ($)


Why Alternative Financial Services?

Find mainstream financial services difficult to manage

No margin of error NSF Fee more costly

than check casher cost

Cannot qualify for credit

Poor Money Management Skills

• Overdraft fees were too high

• Too convenient to let the financial institution cover my NSFs

• Paid hundreds of dollars in fees


AFS Users Need…

CostLiquidity

TransparencyPredictability


Unlimited transactions and

free money orders for $5.00 a

month.


How Credit Unions Can Assist and Compete


Create an Environment

Instill confidence by offering guidance• Financial coaches, financial education• Teach responsible money management• Keep members best interests at heart• Look at your fee structure, can you make it

easier to understand?• How about products?

AFS users have to be convinced joining your credit union is in their best interest.


Fight the Inconvenience Reason

Inconvenience is the most cited reason for use of non bank check cash providers

Mobile Banking Highest usage among:• Minorities• Younger generations• Persons with low income

levels

96 percent of the world is connected via cellphone64% of the unbanked own cell phones


Underbanked Use of Cell Phones

• 29% used mobile payments in the past 12 months

• 62% of those who used mobile payments to pay bills

= ACCESS


Financial Services - Cell Phones

Consumers and Mobile Financial Services ReportBoard of Governors, Federal Reserve System, March 2012


Why Mobile?

Information on credit union products and services made

easily available

Reach your members anytime

anywhere

Information on credit union products and services made

easily available

Update members on

promotions and offers


Why is Cell Phone Use Attractive

• Reduced Transaction costs• Saves Time-which they don’t have• Easy to understand• Greater accessibility to financial products and

services

OSCUI is holding a Mobile Services Webinar July 9, 2014


Transaction Services

ATMDebit Card

Prepaid CardsCheck CashingMoney OrdersBill Payment

eBanking

Low barriers with easy access to deposits


Credit


780CreditScore

690CreditScore

20% of today’s population 40% of consumers,difficult to get credit under any terms


Lower Interest Rate for Timelines

LIFT• Initial interest rate based on credit score• On time payments for 12 months secures a

reduction in the interest rate for the next year

www.filene.org


LIFTCredit Union sets:• Annual rate reduction percentage• Floor rate on loan• Rate change frequency• Maximum number of times the rate is

allowed to reduce• Number of late payments allowed before

disqualification• Grace period on payments• Maximum rate reduction

It’s a web based tool


Lift

• Automatic notification tool

UpdatesCongratulations!

Encouragement


Benefits

Member

• Tangible rewards for positive payment behaviors

• No action required for rate reduction-automatic

• Build up credit score while reducing debt

Credit Union

• Reduced collection efforts and cost

• Encourages those members routinely late to pay on time

• Increased member loyalty and referrals


Loan Products

Small balance loansPayday Alternative Loans

Savings secured VISAsCredit Rebuilder Loans

National Credit Union FoundationREAL Solutions


Savings Products

Small Saver ProductsLow barriers to open

Incentive to a savings goalPenalty for early withdraw

No or Low monthly maintenance fee


Savings Products

Reverse Tiered Savings

• Inverse interest rate structure• Higher interest for lower deposit balance accounts• Encourages persons of modest means to start saving• Usually packaged with direct deposit and checking

account

National Credit Union FoundationREAL Solutions Savings Products for Low Wealth Households


Savings Products

Wealth Builder (Atlanta FCU)• $25 opening/ $25 Mo. Direct

Deposits thereafter• No withdraws allowed until $1000

reached• Thereafter, withdraws limited to 2

free a month• If monthly deposit is not made for

two months, account closed and transferred to a regular savings account

National Credit Union Foundation

REAL Solutions Savings Products for Low Wealth Households


Millennials Family Ties:

• 50% said they talked to their parents on a daily basis• 74% reported getting financial help from their parents

in the last year• 64% reported getting help from their parents with

running errands, housework, or home repairs

PEW Research


Parental Expectations

Financial Independence

• In 1993, 80% of parents said that children should achieve financial independence by age 22

• Now 31% say this milestone should come at 25 or later

• This factor alone could reinforce the boomerang trend for a decade


Parent Feedback

• Guilt and stress with children moving back home

• Unprepared to help children find their way into their own space

• Discussing moving out and paying rent were very uncomfortable conversations


Relaunch

Two accounts are opened:1. Simulating household expenses (rent, utilities,

insurance, etc.)2. Savings

(Deposit amount is agreed upon)Credit Union Provides:• Online reward modules-budgeting, paying off student

debt, financial management• Once completed a bonus deposit is made to the

account


Negative to Positive

• Parent and grown child are on the same team

• The credit union is the neutral, trusted resource

• Provides support and cheering on

• Diffuses uncomfortable situation

WWW.FILENE.ORG


Assist Members in Building Their Credit

• Risk based pricing• Report to Credit

Bureaus• Williampaid.com

has a partnership with Experian


Effective Outreach

• Community outreach collaborations– School districts, volunteer income tax assistance

(VITA) sites, community groups, nonprofits, government agencies, other organizations

• Multi Lingual Staff• Marketing in target group’s language• Understand target group concerns

It takes time and effort


LID vs. Non-LID by Asset Size, 2013Q1

LID

Non-LIDAsset Size <$50M $50M-<$500M $500M+ <$50M $50M-<$500M $500M+

Count 1415 436 59 3100 1379 364Median Asset Size (million) $7.82 $108.50 $879.93 $10.86 $119.86 $1,000.53CAPITAL ADEQUACY Net Worth/Total Assets 11.73 10.42 10.12 12.27 10.40 10.10

ASSET QUALITY Delinquent Loans / Total Loans 3 1.67 1.04 1.06 1.33 1.03 0.97

* Net Charge-Offs / Average Loans 0.64 0.49 0.64 0.46 0.54 0.66EARNINGS * Return On Average Assets 0.21 0.61 0.99 0.10 0.53 1.01

* Yield on Average Loans 6.55 5.64 5.57 5.96 5.26 4.96

* Operating Exp./ Avg. Assets 3.99 3.81 3.45 3.40 3.50 2.76

Operating Exp./Gross Income 82.53 73.92 64.00 84.00 74.89 58.67ASSET / LIABILITY MANAGEMENT Total Loans / Total Shares 55.73 64.94 69.11 52.04 62.19 68.37PRODUCTIVITY Borrowers / Members 39.85 44.88 49.35 39.41 46.70 54.42OTHER RATIOS (FPR) * Net Worth Growth -5.87 7.00 86.06 -12.28 -8.82 10.38

* Market (Share) Growth 4.37 19.64 82.05 -0.31 -0.95 15.45

* Loan Growth -16.20 3.33 80.32 -18.56 -15.53 2.09

* Asset Growth 3.11 18.35 82.03 -1.81 -2.12 13.73

* Investment Growth 26.33 46.91 88.22 15.22 19.67 33.10

* Membership Growth -9.29 8.40 58.60 -14.96 -9.64 6.43


Build a Business Case• State your business goal• Provide a budget - project costs,

ongoing maintenance expenses and estimated returns

• Provide scenarios - best vs worse case

• Consider the Culture-internal and external

• Don’t ignore Non Financial Impact– go beyond what the numbers show; strategic impact is important too

• Policies, procedures and staff training

How to find us: www.ncua.gov/oscui



OSCUI

• Grants and Loans for Low Income Designated Credit Unions

• Consulting Assistance for credit unions under $50M in Assets

• Free Training

• Partnerships and Outreach


Stay Informed

February 2013

FOCUS is the monthly e-Newsletter of the Office of Small Credit Union Initiatives (OSCUI). It focuses on helping small credit unions achieve success by providing news and highlighting opportunities. Click here to subscribe to FOCUS.

Featured this Month (Click on a heading to go to the article.) Headliner: "Small" CU's now BIGGER!

OSCUI in the News: Recent news about our office and services

Consulting: Preparing for a consulting visit

Grants & Loans: Frequently asked questions about grant reimbursements

Partnerships & Outreach: Teaching youth to save

Training: What's happening in Training?

Happening in OSCUI: Information and updates

Announcements: Non-NCUA sponsored events and opportunities

Introduction to OSCUI 42

FOCUS Sign Up

NCUA OSCUI Contact Page

Feel free to contact our office with questions:

Consulting [email protected].

Grants & Loans [email protected].

Partnerships & Outreach [email protected].

Training [email protected].


mailto:[email protected]




American Consumer Reality Check How Credit Unions Can Help Office of Small Credit Union Initiatives...

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