Monday, November 6, 2023

SECU - Needs Risk-Based Lending Because It Doesn't Lend To "A-Paper" Members? # 7 In this series, have 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.  

✅ The SECU Board has evidently been led to believe that SECU doesn't serve "A" paper borrowers. Why? According to SECU Loan Administration, because the rates charged by SECU over the years have not been competitive. That is simply not true - except perhaps over the last 2 or 3 years!

How do you know? Here is the breakdown of actual SECU borrowers toward the end of last year by credit tier (the SECU Board received this information):

Doesn't that really look like a fairly well-distributed portfolio of members?
  Please note also the total balances owed by each "Tier" group:
"A" paper loan balances: $8.9 Billion       
"B" paper loan balances: $6.6 Billion
"C" paper loan balances: $5.7 Billion
"D" paper loan balances: $2.1 Billion
"E" paper loan balances: $0.3 Billion
❋ ... SECU "A- tier" borrowers owe the most at $8.9 billion and "A-tier" members owe more than all the "C, D, E" folks combined!
Everyone agrees that increasing loans to A-paper folks is a a sound idea if done prudently. All agree that SECU should offer a market competitive A-rate on loans. SECU Loan Administration staff claim they can do that. If you look at the SECU website, Loan Administration says that today the competitive A-rate for a 72 month new car loan is 6.25% and for an older used car 72 month loan the market competitive A-rate is 7.75%. 
✅ Do "A-paper" SECU borrowers agree that they would be thrilled to use SECU to finance their next car at today's rates? If they "shopped the internet" today would it be difficult to find a better rate?

  ... Y'know when you look at RBL more closely, it never seems to "add up"!?