Sunday, November 5, 2023

SECU - Risk-Based Lending - Getting Those "A-paper" Loans Back? #6    Ever made a poor decision in life? (Y/N?) Bet we all answered that one the same!

Took Saturday off to let the anonymice run free and get some exercise, but we need to get back to work on risk-based lending (RBL).  Over the last 5 posts in this series, tried to demonstrate that: 1) SECU has been highly successful for the last 85 years - without RBL, 2) SECU has been financially successful - last 5 years "most profitable ever" per CEO Brady - without RBL, 3) SECU members - per SECU Loan Administration estimates - will pay literally hundreds of millions of dollars in excess interest on loans - with RBL, 4) the same rate, "A-paper for all" lending approach is a superior "marketing" strategy - without RBL, and 5) there are no financial, nor operational reasons for the SECU Board not to pause future RBL implementation to re-discuss its decision with the SECU membership. 

That last refusal to pause and review RBL with the SECU membership looks like the classic example of the SECU Board adopting a circular firing squad strategy. Perhaps the 2023 Annual Meeting carried no message for the SECU Board about the need for transparency with the membership?

But let me do a quick brush up on that "A rate for all" lending approach. First, SECU Loan Administration (LA) folks appear to think that they can come up with an "A-paper" lending rate which will be highly competitive and attractive to SECU members. I agree that is a good goal for LA to focus on! If LA can implement that market "A-rate" at SECU, then hopefully more "A-rate" SECU borrowers will use SECU. Sounds really good, hopefully it works! SECU will become even "more profitable" in the future as SECU converts those low-yielding investments (earning less than 1%!) into loans earning much more.  Go for it!

But, if you're perhaps shrewder and wiser; consider the "marketing and reputational" value SECU would achieve, if SECU also offered that competitive "A-rate" to every other qualified SECU borrower - whether B, C, D, or E paper! Does anyone doubt that all those B, C, D, E SECU borrowers will be getting the best rate (the A-paper rate!) possible for them from their Credit Union? Do you think all those B, C, D, E qualified borrowers will always consider SECU first for their future financial needs? And, tell their friends, families and coworkers to check with SECU first? Can't buy that kind of support and loyalty with a Super Bowl ad, can you?

Every SECU member wins with the same rate "A-paper for all" lending strategy; the majority of SECU members lose hundreds of millions of dollars with RBL! Wouldn't a pause be prudent?


... RBL: the "risk-based losing" strategy.  A circular firing squad approach?