Almost all financial institutions in the U.S. have jumped into the practice of risk-based lending. A few were just flat-out duped and fooled; but the vast majority were willing victims - they really didn't mind playing the fool at all.
Lot's of money to be made fleecing folks with risk-based lending! For decades lenders were repeatedly caught purposefully overcharging and exploiting the unknowledgeable, the vulnerable, the too trusting - y'know good-hearted folks, your family and friends. Lenders looked like heartless loan sharks when exposed - and were.
Lenders needed protection from this type of constant harassment by "do-gooders" - y'know good-hearted folks, your family and friends..
Faux "statistical legitimacy", consciously misapplied via credit score pricing, has now provided risk-based lenders with the political cover, which today makes the shearing of the sheep mere child's play - easy
pickings!!
And generally, when given a choice between "good and gold"... well, you know how that usually comes out these days!
In risk-based lending, credit scores are used to establish a tiered-rate chart with members with lower scores paying higher rates. The statistically valid idea is that if lower credit scores create higher loan losses, then those members causing the losses should reasonably be charged for those higher losses No problem with that!
😎 The problem arises when you overcharge the wrong people (over 80%+ of the time!) for those higher losses. An 80% error rate in any product or service should be unacceptable, shouldn't it? Borrowers who default don't pay for the losses - as they say "duh-h-h-h"! They don't pay anything at all - that's what "default" means - got it?!? The "wrong people" being charged for those losses are of course the SECU members in the group who faithfully do repay their SECU loans. And, you know who those folks are? Yep, you guessed it - good-hearted folks, your family and friends.
Let's take a look at an example of why RBL is a really bad deal for SECU borrowers.
 |
| Pick the Queen! Your odds are 1 in 5 - 20%. |
Now just for the sake of argument,
let's assume you used a bit more rational, fair and defensible method of
determining the risk of the borrower, rather than just "eenie-meenie" or the "pick a card" risk-based lending model.
And you know who holds all the cards... on this sleight of hand, this slight of the membership?
Becoming a house of cards?
This has historically been very effective, but how do you adapt this to an increasingly digital world?
ReplyDeleteWhy would you think "digital" would be different?
Delete“ Imagine that you actually sat down with each loan applicant individually and went over their financial condition, asked for explanations of the credit blemishes, and listened to them honestly as fellow members and human beings.”
DeleteHard to “sit down” with someone digitally.
Especially if you aren't interested in helping the member...too busy with self-importance?
DeleteWould you feel the same way if you were on the "Private banking", wealth management team at a bank. Just tell those suckers to "go to..." (digital!)
I’m struggling to see how your approach would even allow a member to apply online. Please correct if this is the wrong interpretation of your post, but it sounds like you are saying that losses can be prevented by face to face conversations and that allowing members to apply online would lose that ability to weed out the “queens”. This would suggest that lending outside of an in person dialogue would result in higher charge offs. If that is the case why even allow members to apply for a loan online?
DeleteWhat's the struggle? Once an SECU credit card for example is set up , you don't approve every subsequent charge/cash advance the member makes do you Never have... Same on HELOC? Same on mortgage? Preapproved, blank check car loans? Ever know that branches have pre-approved most loans over the phone/email/text.
DeleteNot familiar with lending...may not be SECU which is out-of-date...
Not the original poster, but your comments seem to show you’re out of touch with digital banking.
DeleteI don’t want to have to talk to a person and tell them my life story. I want an instant decision online.
DeleteWhy don't you explain "digital banking" to us. Surely you can clearly outline how it works other than the simplistic "apply on line" - right? Or perhaps you can't...here's your chance! Look forward to learning...really I would welcome your insight.
Delete9:56 You seem to be a bit confused...do you apply for each use of credit you make now? how many applications did you submit today? this week? this month?
DeleteWay behind the times, if that's the way you're doing it! Most advanced folks apply one time for a line of credit tied to collateral (HELOC) or unsecured with a credit card...then we never have to apply again unless we'd like to make a change.
Really, if you're applying on line all the time looking for instant answers...maybe you should go by a branch and let someone help you...it's almost like you're stuck in some sort of "1983 mindset"!
Not sure if this is what you are looking for but “digital banking” or “applying online” occurs when a member submits a request for a loan (car loan, personal loan, mortgage loan, credit card) through the website. This can happen 24 hours a day rather than just business hours, and does not usually involve a face to face discussion that you describe in your post. An online loan application is often chosen by consumers due to ease of use and convenience.
DeleteYou do have to apply for a car loan or closed end personal loan each time you need one.
DeleteCan't members apply 7x24 on line for most SECU loans now? Has that been dropped too?
DeleteSo about all you say digital banking is applying online 7x24? That it? Doesn't sound very exciting, innovative...really is that all there is to it?
I think the original commenters point is that you say a face to face conversation is how SECU can negate the need for risk based pricing. Online applications do not allow for face to face interactions. How can you justify allowing online applications for members if you can’t make good loan decisions and reduce charge offs without an in person conversations? The natural conclusion of your logic is that members should be required to apply in person because online applications don’t allow you to tell a jack from a queen.
Delete10:12 What happened to open end personal loans, with subsequent advances? Car loan pre-approvals been dropped...does that service require a member to come in for an interview with branch?
DeleteSECU doesn’t offer car loan pre approvals.
DeleteWhen was it dropped? Why?
DeleteI’ve always had to apply every time I’ve wanted a car loan.
Delete10:20 You miss the principal point in two ways. First, the key to the most successful financial relationships is "know your customer/member"- it's not a need for an interview each loan, it's taking the time to invest in getting to know the member, trying to establish a personal relationship - the branch system has been hugely successful at doing that in the past. May be a bit humbling, but the strongest relationship builders in SECU do not work in an ivory tower in Raleigh - never will.
DeleteThe second point is if all lending is done centrally by score - you will make the queen loan - no way around that unless you stop lending entirely to certain groups, which SECU has now done, but has not told members directly! (par for the course over last two years). Or you must overcharge whole tiers of members for the slack, "industry standard" underwriting, which is also now happening.
Blockbuster innovations at SECU - "digital banking and RBL...really?
10:34 How did you apply? Did you do so online or over the phone? Have you asked your branch to look at your financial situation and see if there are other answers? Would expert advice at no cost to you be helpful? Might be worth a trip sometime for you...
DeleteWhether the commenter at 10:34 applied in the branch or not, do members not deserve the ability to apply online? If they apply online, how can you tell a jack from a queen? Should applying online continue to be an option? Members applying online doesn’t seem to fit with your vision for what SECU will be at 10:48.
Delete"... no way around that unless you stop lending entirely to certain groups, which SECU has now done, but has not told members directly! "
DeleteInteresting hadn't heard that, obviously. What group would that be?
The choice shouldn’t be either /or. Members should get a choice and SECUs method of effective underwriting should not be dependent on members applying in person in the way you describe in your original post.
DeleteEcho the question from 8:28. What members are you talking about?
Delete9:11 A bit hallucinatory...seem to be skipping over the fact that members are already applying on line now, or over the phone, by text, at church, in the grocery store aisle with ba ranch employee, even in person. Don't deny the reality that exists. Perhaps you should get out to a branch and see how lending really works - and could be improved. at SECU.
DeleteDigital "innovation" is not "applying on line." - that's a bit "1983'ish" thinking, don't you think? Making the application process easier, quicker is great... might stop the decline in service quality - but probably not.
The essence of effective lending is individual underwriting ( stay calm, that doesn't mean in person, at branch every time) at which SECU used to excel, because decision making and accountability was at "the closest point of member contact" - the branch. Centralization - with little accountability - has destroyed the potency of the branch system, with resulting soaring loan losses. Guess it's great the CU is making more loans and collecting less?
8:28 You haven't been told that the "E' tier has been dropped...?
Delete8:28...in some cases and several other "tier-based limitations" have been imposed? Funny how these announcements seem to be frequently overlooked.
Delete6:54 not sure why you arrive at that conclusion...except it seems to fit your particular view. Try the 9:11 response... maybe you just got up too early this morning!
Delete10:01 - this is false (or at most a half true response). Members with score in the E tier range still have access to lending. There are restrictions on product or amount, but there are still products available - car loans, personal loans.
DeleteLet’s try asking the question another way - how do you separate a jack from a queen when a member doesn’t apply in person? If it can’t be done as well, why even allow it?
Delete10:26 Fair enough.. would you tell us about the half true part of the "restrictions on product or amount" that you acknowledge have been imposed on these members - since they don't know about them. Thanks !
Delete10:31 Glad you asked! Best advice I can give you is to send you to the experts. So, Monday why don't you go out and visit the folks in a branch who made that magic happen at SECU for the first 85 years. Look forward to hearing what you learn...won't hurt you.
DeleteOk. Been able to apply online forever. If there was any question (or even if not) the loan went to the branch. If there was a question, the branch called. It wasn't just a number. It was a personal decision. so maybe not face to face but pretty close. the way it is now bob seger describes it well. https://www.youtube.com/watch?v=owpX2UPYRKQ
DeleteExecutive team just wants to reduce to the skill set and need of the loan officer and teller..reduce employee size for those jobs. Save$$ that’s all they care about. That’s the only reason they are drastically trying to change consumer behavior at SECU so loan officers and tellers aren’t needed. Like it or not, our membership likes to call in and speak to a human. They don’t want to speak to a robot that barely works half the time and routes them to the wrong areas. You must be a rare member, but our membership loves the human employee.
DeleteIf you have a 20% loss and are only charging 10%, you are losing money. Not a smart or fair choice.
ReplyDeleteIts a good point but not necessarily for the reason you say (remember it was an example!)... first if you use individual underwritng you have a high chance of avoiding the "queen loss" (you don't make that loan) so your losses become minimal and no excess discriminatory rate charge is justified - unless of course you're a bank and just want to make more money, which for a bank is ok!
DeleteIf you move to automated "digital" lending (under this example) you'll always make "the queen loan"... so your losses will always be "industry standard" - whatever the "score predicts". In fact, experienced lenders will tell you that "the queen loan" will be the first to apply - and ask for the most. Why not, if I'm not going to repay anyway, I can afford it!
"Know your customer" has always been the hallmark of the best lenders - full individual accountability on both sides - lender and borrower.
With automated (generally centalized, underwriting, loan losses will rise...already are at SECU...and will continue.. go back and look at loan losses/chargeoffs. Not exactly encouraging....
Just like Vegas, the House ALWAYS wins!
ReplyDeletenext up Artificial Intelligence ... WHO wouldn't love that!
ReplyDeleteDoes anyone know what is going on with SECU gift cards bought at SECU over the last few years and not used. As a former SVP, I was approached today at my normal lunch spot by two separate members who had letters in their hand saying that some outstanding gifts cards they had purchased for gifts were cancelled? One member has two cancelled and the SECU refunded her the $4 fee. She called a branch and asked for the gift amount back also and was told she would need the cards. These card were purchased 3 years ago and she doesn’t know who she gave them to. Besides if the cards have been cancelled why not refund her money. Needless to say she is perturbed and will be heading to her branch tomorrow on the war path. Glad I am retired! The other member had purchased their’s a year ago. As mentioned this was 2 separate members unknown to each other that approached me in a cafe that only has seating for 65. Coincidence or is this a major snafu?
ReplyDeleteIt was a problem with the Gift Card provider (servicer). SECU is going above and beyond to identify and notify anyone who purchased cards during that time frame. As much trouble as the new management has caused, this isnt one of them. SECU is doing the right thing here.
DeleteSince you're making the claim why not explain it in more detail? What's the problem? How many members are affected? What will it cost the membership? Why shouldn't members receive a full reimbursement of what they paid for the card with or without the card? Willing to own up? Or... is transparency going to be an issue again?
DeleteI work at a branch and agree SECU is going well above and beyond here. PSCU had their systems hacked and thousands of cards drained and they provided crap protection and service for these gift card holders. Thank you to SECU for refunding purchasers and card holders and making everyone whole!
Delete10:45 Has that been announced to the members? This all started with an inquiry from a former employee who had complaints from members indicating they weren't getting reimbursed unless they had the gift card!? The message isn't uniform
DeleteSounds expensive...
Isn't SECU trying to consolidate all its debit/credit/gift card management under PSCU and away from VISA? Security level been rechecked....
9:03/10:45 Any further info?...your statements again don't align with the statements presented by a retired SVP. A continuing problem over the last year is bold statements of "success" that don't stand up to scrutiny nor what is actually happening...
DeleteSECU "the trusted provider"...look out if you lose credibility with the membership. Hope you'll provide more info... members would appreciate an end to the continuing saga of "corporate surprises".
I also received notification about 1 card purchased in 2020. I don't remember to whom it was gifted so I cannot tell them to take it by SECU to get the rest of the money. Plus I don't know if there is any money left on the card. Earlier this year I attempted to use a gift card I was given, and the card had been cancelled. I called SECU. Had to send message with card number and the remaining funds were deposited to my account. I have no idea how much I had spent, so I trust that they had the correct balance somewhere. It was not explained that the vendor had been hacked, so I was left thinking bad management and what is wrong with the Card Services department. LOL! Glad to know the truth. - Charity
DeleteSo what information did they get when they hacked the cards?
DeleteIsn't secu required by law to notify members and regulators of such hacking breaches?
DeleteDoesn't sound right given the NC Escheats law. Might want to let Ms. Ray know or on second thought call the State Treasurer Dale Folwell...his staff "answers the phone" according to his campaign literature.. and will give you a straight answer.
ReplyDeleteWhat is unclaimed property in North Carolina?
ReplyDeleteNorth Carolina law requires unclaimed property holders to report and remit unclaimed property on an annual basis after a dormancy period is met. Unclaimed property can be bank accounts, wages, refunds, utility deposits, insurance policy proceeds, stocks, bonds, or contents of safe deposit boxes that have been abandoned.
Folks in NC can go to this site from the Treasurers office to see if they have any unclaimed property.
Deletehttps://www.nccash.com/
CU is required to turn over unclaimed accounts to State Treasurer...but doesn't sound like this has been done as yet in this situation.
DeleteThe competitive advantage SECU had for many years was its experience and expertise in the branch evaluating member loan requests and building relationships. We didn't get it right every time but sure beat the hell out of that 20% or even 10% charge off likelihood.
ReplyDeleteSome members don't need a face to face because of their financial circumstances but for those with desperate needs and not so great credit you can bet the ranch they WANT a face to face to explain their situation. Judging them strictly by a credit score makes absolutely no sense, it's just dumb for a whole bunch of reasons.
Sad part is that as SECU has languished the last two years (and appears on the same track for the next year) we continue to lose that expertise whether it be helping members with loan requests or collecting delinquent accounts.
Whoever decided the branches were "obsolete" and stripped them of the things they do best really screwed things up. Gonna be a challenge to fix.
What was the historic charge off ratio for these loans? This post seems to assume that the charge off ratio for these loans was low because of the discernment of branch staff. I don’t remember ever seeing the losses published by credit score. Are we to assume that the losses incurred on loans to lower credit score borrowers was low? That seems to be the implication of your post, but does the data really back up this point? You always highlighted the loss ratio for ALL loans, but that doesn’t mean that losses incurred for the jacks and queens was low because of the method you describe. Is it possible that the losses in this group of loans was obscured by a hyperfocus on the overall loss ratio? If you believe that higher credit score borrowers have a moral obligation to pay higher rates to subsidize losses for the queens that make their way into the loan portfolio then you should say that.
DeleteBest question ever!... that SECU won't tell you nor the membership...an honest review and discussion of RBL is all that ever has been needed. Provide the facts, discuss the problems, decide on best solutions,... make an informed business decision and move on..
DeleteThe CEO, and LA have fought against transparency and full-disclosure from day one on this issue... because it appears they jammed the Board with junk facts and a "made to order" analysis. They fear a fresh air re-look. Why? Check out the rising delinquency and losses and the growing decline in member services.
Keep asking your question in every forum possible. Truth will set us all free - right?
The Board by the way should demand the open reevaluation now - it's ok to be fooled by management, it's negligence to let it continue.
Did you release this data (specifically losses by credit score range) when you were leading SECU?
DeleteHere's aprior post if you'd like to take a look at what is unfolding with loan losses and delinquency. https://www.secujustasking.com/2023/11/lots-of-controversy-mong-members-about.html
DeleteHere's the post giving loan loss data going back 15 years compared with other large CUs. You are correct in asking for a more in depth look at what is going on with SECU losses now - and why?
DeleteBecause obviously something has changed in a dramatic, costly manner...
https://www.secujustasking.com/2023/11/secu-risk-based-lending-just-excuse-to.html
10:24 Don't get pouty now...remember while I was there SECU didn't have tiers and discriminatory RBL. That's a recent digital innovation... y'know RBL has been one of the main problems with the members through all this if you haven't noticed.
DeleteBut if the data exists, yes release it going as far back as you can go...glad you support the release by LA of the underlying data for full review!
So the answer is no?
Delete3:10 no, the answer is yes look forward to the open publication of the data...glad we agree!
DeleteYou do agree to full publication, right?
DeleteLoan Admin really thinks the branch staff didn’t make a difference in collection efforts…how disrespectful. Our selling point is human service. People helping people. Expertise by a human that is local!
DeleteAs a side note, a longtime commenter has been asking me to support his view that credit scoring on insurance is just as bad as RBL. While I support his view, lets keep focused on RBL which is literally costing SECU members hundreds of millions of dollars in excess discriminatory interest on loans...can work on the ant after RBL elephant is under control. But do agree with his view that credit scoring is potentially being used abusively on many fronts including insurance, employment, apartment rental, and the list goes on.
ReplyDeleteAs you know, it's not just defaulting/charge offs that come into play. It's also the considerable collection efforts for (mostly) lower-tiered borrowers. This is a full-time job for branch staff and in busier districts like mine it is a huge burden for the staff since we were also expected to serve the 60-90 member we had a day on the loan side plus answer phones. In many cases we were calling and sending letters every single month to the same borrowers, essentially having to babysit them so they would pay their loans. (I don't use that word to disparage the members, but really that's what it was.)
ReplyDeleteRaleigh severely underestimated how much effort it took to keep our charge off ratio as low as it has been when they tried to centralize collections. This, I think, was a big part of why the centralization was not very successful It's also a very important missing piece to the case you're presenting here. Those collection efforts cost A LOT of time and money (in terms of staff salary).
Is it not the case that the higher rates under RBL for lower tier members would help offset this?
Centralization in general has been a failure. Decentralization across SECU is needed. Local decision making needs to be put back in the branches and not by some self serving handful of people.
DeleteHow did SECU achieve record profits the past two years without race based lending?
ReplyDelete"Since none of it went to "A Paper" savers, what did "the 8" on "this board" do with a BILLION in record profits the past two years?
https://www.secujustasking.com/2023_10_31_archive.html