Tuesday, February 14, 2023

SECU Risk-based Lending #3

 To: SECU Board of Directors


Dear Chairman Ayers,

Continuing to pursue with you the issue of implementing risk-based lending (RBL) at SECU, which you and the SECU Board have approved - in error in the opinion of many SECU members.

The first email - RBL # 1 - debunked the idea that the absence of RBL had somehow caused SECU delinquency to surge; when in fact, the internal snafu of centralizing collections was the primary cause - increasing delinquency from .83% in April 2022 to 1.87% at year end, with reported loan losses rising by 175% over 2021.

RBL # 2 noted that the impression SECU is not serving "A" paper members is absolutely false and that your approval of RBL will substantially damage almost 700,000 members (the "C", "D", & "E" folks) - over 59% of all SECU borrowers. It was also obvious from a quick net search, that your new RBL "A" paper auto rate (of 5.75%) isn't going to be particularly competitive. I did fail to point out that although SECU assets declined (by -2.2%) at the end of 2022 - for the first time in 85 years; outstanding member loan balances increased by over $4+ billion during 2022 - why again are you trashing a system which clearly works so well for the members?

But, for this round, let's take a specific look at the actual increased cost of your new risk-based lending program to the majority of SECU member-borrowers. Here's one example of the new RBL scheme, which you are using to train your staff - the cost of financing an $18,000 used auto over 5 years:

The new RBL rate tiers approved by the SECU Board are as follows:
  • "A" paper - Credit Scores from:  720 - 850
  • "B" paper - Credit Scores from:  660 - 719
  • "C" paper - Credit Scores from:  600 - 659
  • "D" paper - Credit Scores from:  540 - 599
  • "E" paper - Credit Scores from:  300 - 539


Pay particular attention to the chart column headed "EXTRA INTEREST" where the SECU Board has decided to charge certain "profiled" SECU members more for a used car loan. SECU currently has 24,840 auto loans with "B" paper members. If RBL had been in place when they borrowed, those folks collectively would have been charged $6.2 million more for their loans (24,840 folks x $250 extra interest = $6,210,000 !).  The 35,453 "C" paper folks who now have auto loans would have been charged $35.4 million more (35,452 folks x $1000 extra interest = $35,453,000 !). The 28,792 existing "D" paper auto borrowers would have been charged $51.8 million more for their loans (28,792 borrowers x $1800 extra interest = $51,825,000 !) . And, those 12,608 "E" paper folks would have been charged $28.3 million more (12,608 folks x $2,250 extra interest = $28,368,000 !) That total "benefit" of RBL would have cost hard working SECU members an extra whopping $121.8 million! 

And, that is just the extra cost to SECU members for car loans...wait 'til you see how much risk-based lending is going to "benefit" you on your SECU mortgage loans, home equity loans, personal loans, and credit cards. Don't worry, be happy, your SECU Board is looking after your "interest" (in this case that "interest" will cost you an extra $121 million !). But, it's okay, the SECU Board knows you have plenty of money to spare to cover this additional "new benefit"

Would note once again that according to SECU's own data, members in the "C", "D", & "E" paper "class" - all 700,000 of them - have a 99.3% record of faithfully repaying their SECU loans across all categories!

Chairman Ayers, did it ever occur to you and the SECU Board that the 99% of "C,D,& E" borrowers who you acknowledge faithfully repay their loans are actually "A" paper? They repay their loans  exactly like the "A" paper folks!

Chairman Ayers, it's clear that you and the entire SECU Board don't "get it" yet, or you would never have approved RBL!!!!

Why have you decided to profile, discriminate against, and monetarily penalize these SECU members with multi-million dollar interest rate surcharges?

Hope this is helpful.


* Would note again, that so far, there is no indication the SECU Board has developed plans to educate and inform SECU members of the specifics  and future  "benefits" of the new RBL program. 


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