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?