Previous employee loans are one of the categories of “high risk loans” we talk about in our training. In my opinion, I believe the credit union should be aggressive when lending to their own employees. One of my questions I ask every frontline employee when I am new to a credit union as a consultant is “Would you get your loans here? “. In my experience; nine out of ten employees say they would not get a loan at their own credit union! One of my goals with a new client is to win over their existing employees to a (hopefully) an improved loan process.
Here is my justification for being aggressive with your employees and common mistakes that I see:
- Your employees should be members of your credit union. You should be good at lending to your membership.
- What does everyone talk about when they are outside of work? – Their Job. Your employees are part of your brand and reputation in the community. You may think that your employees care about your ROAA, but trust me, one thing they really care about is the decline percentage at your credit union.
- Discounts – many of my clients offer in policy a discount to their employees as a benefit of working at the credit union. This is a common practice in the credit union world. It is also a small cost to the credit union to retain and recruit good employees.
- Process – these loans should be prioritized the same as all your membership. Your employees need answer quickly. Typically, these loans are reviewed by senior management at some shops and may sit for a period of time. Frontline employees should be treated the same as other members from a timing and fulfillment standpoint.
- Controls – You obviously need controls in place to avoid fraud and collusion.
- Underwriting – A common mistake that I see at credit unions when reviewing employee loans (declines) is they use information that they know personally about the employee that they would never know about other members.
- Charge-offs- Yes, you will take losses on former employees, this is a cost of doing business. What is the cost of not being aggressive with your employee loans today? Do you have any idea how many of your employees have a negative attitude about the consumer lending process at your credit union today?
When I was running a credit union, we launched a new Visa Rewards program. As part of the launch at my credit union, I authorized that all employees would receive a minimum $1000 Visa Rewards card – the underwriting criteria was pretty straightforward- are you employed at the credit union. If the employees wanted to get a higher limit they could apply for more. I wanted that card in the hands of the employee. I wanted all my employees to understand the benefits and how it worked. The c/o ratio on that offering was 5%. Higher than my average c/o for Visa, but still well worth the investment to get the staff excited about the offering and using the card.
I understand employee’s reluctance to apply for privacy reasons, however, it should be the practice at all financial institutions to guard applicant information.
Good people are hard to find in this current environment. You already won your employees over by hiring them away from another employer, it’s time to keep them on your side.
We are busy planning for next year, we would love to hear from you at your credit union to talk about growing your loan portfolio!
Don Arkell
Owner
CU Lending Advice, LLC
don@culendingadvice.com