Thursday, February 16, 2023

SECU Risk-based Lending # 5

 To: SECU Board of Directors


Dear Chairman Ayers,

Good Morning! Well, here we go again! Know you're eager to hear more about why risk-based lending (RBL) is financially detrimental to the entire SECU membership - and to the hard won reputation for fairness which SECU enjoys.

Recognize that it's hard to "eat crow" when you are in error. Personally, I have had extensive past experience in dining on that cuisine! Yep, we all make mistakes - admit them, correct them, and then move on - that's "just life". But, if after being given notice of a potential, seriously significant strategic mistake - which may adversely impact 2.7 million North Carolinians - you and the SECU Board continue to refuse to pause and review the RBL issue, that's not "just life", that has a not so subtle whiff of hubris.

RBL #1 pointed out that errors do occur (with the resulting doubling of delinquency and a 175% increase in loan losses last year). RBL # 2 demonstrated the assertion that RBL is "a must" because SECU doesn't serve "A" paper borrowers is "wildly fictitious". And that, most any internet savvy 8-year old can easily beat your new, super 5.75% "A"- paper rate, with just one or two clicks. Basically, the SECU Board's proposed "tiered-rate strategy" achieves just two things: 1) it insults the intelligence of your "A" paper members and 2) it insults the integrity of all the other members - including the SECU staff.  But hey, don't believe me, just find yourself an 8-year old and check it out!

RBL # 3 quantified the extra interest cost to SECU members of the Board's proposed RBL strategy - compared against the existing used auto portfolio. The unnecessary extra cost was estimated to exceed $121 million - that's not a "rounding error" for SECU members. RBL #4 showed that RBL tiers - and interest rate surcharges are arbitrarily assigned by the SECU Board - nothing mathematically precise nor Biblical about those tiers and extra interest costs. "Whimsical" would probably be an unfair description of SECU's tiers, "artificial" would be entirely accurate. But, it is clear that a mere 1-point difference in a credit score could cost a state employee or teacher a paycheck over the life of the used auto loan. That's not fair.

But, need to stop this rambling and cut to the chase, because word has it that Chairman Ayers and the SECU Board are going to impose RBL upon the SECU membership - without further examination - as early as next month (March, 2023). Time grows short.

Why exactly Chairman Ayers are you and the entire SECU Board so hellbent on jumping off a cliff?

Any harm in reviewing your due diligence on the risk-based lending issue and sharing your analysis with the member-owners of the cooperative you represent? Go an extra step or two to assure everyone - including yourselves - that you have met your fiduciary responsibility to 2.7 million North Carolinians?

What if someone gave you a suggestion which would give you "an easy-out" of this dilemma? One of those "win-win-win face savers" which calms the waters, unruffles some feathers - would you and the SECU Board not be wise enough to "jump on it'?

image.pngWhy not try this?

Here's the "New Strategic Plan!"  Ready??

  1. SECU has over $14 billion (that's right billion!) of the members' money sitting in US Treasury security investments with an average yield of !.33%! Good, safe, sound investments - good job! (As to the 1.33% yield...well let's talk about that another time.). SECU also had an existing used auto loan portfolio of @ $2.6 billion at year end 2022. With RBL, the SECU Board seeks to increase that auto portfolio.
  2. The SECU Board-backed RBL Plan  - calls for making used car loans at tiered rates from 5.75% to 10.75%. The "A"-paper rate under the Board's RBL plan is 5.75%. Any seasoned lender will tell you the 5.75% "A" rate isn't going to attract much new interest. And, as we've discussed, the other RBL tiered rates are little more than a gouge to overcharge many long-time, dependable, loyal SECU borrowers. The Board's plan makes about as much sense as announcing a "Y'all Come Open House" during the Covid-19 pandemic - you can be sure not many members are gonna take you up on this offer.
  3. The Thomas Paine Plan - Here's the new strategy - a really revolutionary idea, well sorta - just lower your rates! Instead of letting that $14 billion continue to sit around earning  just 1.33%, let's take $2.6 billion out and lend it like crazy to the members (any and all qualified SECU borrowers!) at a flat rate of 4.33%!!! That 4.33% rate beats every rate offered under the "who came up with this idea anyway" SECU Board RBL Plan. Every member benefits equally, the "word of mouth buzz" will have a far greater impact than those new, expensive "looks just like everybody else's TV ads", and the reputation of SECU will remain unbesmirched.   
Why would you want to sit on $14 billion of the members' money for the next 5 years at 1.33% if you could thrill the members with a 4.33% used car rate? Want to really be bullish and member friendly - try a 3.33% rate ! Why not give the North Carolina economy a jolt, make the auto dealers ecstatic, show the members you really love them? Heck they may even choose to re-elect you!

Oh, forgot to mention that with the Tom Paine Plan the annual income of SECU would also jump by $78 million ($2.6 billion earning 4.33% rather than 1.33% = +$78million in earnings) - which hopefully the Board will use to pay better rates to SECU savers (before they flee for a fairer rate somewhere else too!)

Okay got it? What are you waiting for: "Do the right thing!" - lower those auto rates for everybody - today!



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