Friday, November 17, 2023

SECU - Risk-Based Lending: Some Members Are "More Equal" Than Others?  Would like to repeat the most glaring, real life example of what has gone missing with the new risk-based lending direction at SECU. What's gone missing? Fairness. Take a listen...

Ms. Leigh Brady is now the CEO of SECU. Ms. Brady is a 30+ year employee, smart lady, who came second - on a 6 to 5 vote - to the former CEO in the SECU executive search process two years ago. Rumor has it that Ms. Brady and Hillary Clinton still suffer traumatic nightmares from such experiences. 

As mentioned in a prior post (May 22, 2023), Ms.Brady asked to make a presentation about risk-based lending to the Board of the State Employees Association of North Carolina (SEANC). Why? Because in February, 2023, SEANC had voted unanimously to ask SECU to rescind the introduction of risk-based lending (RBL), until the two organizations could discuss that change. SECU agreed to a meeting, but in the interim introduced RBL anyway (see March 26, 2023 post). Ms. Brady wanted to clear the air on the issue of risk-based lending for the SEANC Board.  Ms. Brady summed up her far from convincing explanation of the benefits of RBL - it was weak on only two points, facts and substance - with the following personal story. She indicated that her recent college graduate daughter had just bought her first car. Being a young female with little credit experience, her daughter had not qualified for the A-paper best auto rate at SECU. But Ms. Brady explained that wasn't a problem, because Mom just co-signed the loan which then qualified her daughter for the A-paper rate. See, RBL really does work well!

There was a moment of somewhat stunned silence in the room among the 40 or so SEANC board members. It was one of those: "I can't believe she just said that" moments.

Then a young, female, Af-Am SEANC board member rose and said politely: "Ms. Brady you need to understand that most of us don't have an affluent parent who can cosign loans for us." 

And, it was obvious to all in the room that Ms. Brady - and the SECU Board? -  either don't understand the financial realities of most SECU members, or simply don't care. 

It proved useless to point out to Ms. Brady - though several SEANC board members tried - that her own personal example with her daughter, confirmed that risk-based lending discriminates against young people (credit scores generally -43 points below average), females ( -12 points below males), AF-Ams (-26 points below Caucasians) and people of modest means - all confirmed by independent research on credit scores.

The board members of SEANC were too polite to ask Ms. Brady why SECU felt her daughter, under risk based lending, represented a higher risk of default to SECU as her credit score indicated?


  Surely the credit score isn't wrong, is it?

If not... then who is?


SECU Uses Collective Punishment To Financially Harm Vulnerable Members


✅ Collective punishment is often used as a disciplinary measure in institutions such as schools (punishing a whole class for the actions of one known or unknown pupil), military units, prisons, psychiatric facilities, etc. The logic underlying collective punishment is weak at best, but collective punishment is definitely effective in breeding distrust and resentment within groups. 

Got it? Let's take a look at the use of collective punishment at SECU in connection with risk-based lending  and how it affects the SECU membership - you and me.

Fraud is an interesting word. Think we all know what it means, but just for a refresher: Fraud -  wrongful or criminal deception intended to result in financial or personal gain. Pretty clear, right? Are we all together on what fraud means?

1) When a loan officer makes a loan at SECU - whether it is in the A, B, C, D, or E risk-based lending tier - that loan officer expects that loan to be repaid. If a loan officer makes a loan which she doesn't believe will be repaid, then that loan officer is committing fraud. Easy enough, right? If you make a loan that you believe will not be repaid, you are committing fraud against SECU and its' members.

2) So, every loan made at SECU is a good loan when made by the loan officer. Every loan is expected to be repaid, that  includes every A, B, C, D, and E loan made. 

3) Despite the fact that every SECU loan is good when made - or else the loan officer committed fraud - the SECU Board has decided, by implementing risk-based lending, to charge 50+% of all SECU borrowers higher rates in the B, C, D, E risk tiers for that good loan they just made

Why would the Credit Union overcharge an SECU borrower for a "good when made" loan? This unjustified, pre-profiling via RBL of "certain" SECU members is purposeful, reckless discrimination... and unwarranted collective punishment!

4) Why is overcharging 50+% of all SECU members collective punishment? Lets' look at an example. Loan losses at most financial institutions are highest on unsecured loans and credit cards. So, lets assume that 1 out of 10 SECU "E"- paper borrowers default on their "good when made" unsecured loan. That would be a very high 10% default rate! 1 out of 10 of those "E" borrowers in the example didn't pay - and yes, that's bad

But, what is far worse is that the SECU Board fully supports overcharging -  without justification - the entirely innocent 9 out of 10 SECU members who did faithfully repay their  "E"- paper unsecured loans.  "Good when made and now good when paid!" No question, 90% of these SECU borrowers were unfairly overcharged.

5) All the credit bureaus explicitly tell lenders - the SECU Board included - that credit scores can not and do not predict which individual SECU borrowers will default on a loan. Yet with RBL, the SECU Board has chosen to actively discriminate, collectively punish, and financially harm the majority of SECU borrowing members - in the B, C, D, E tiers.

6) If you and I were being incorrectly overcharged 90% of the time at the grocery store, at the gas station, at Walmart, Target, Lowe's, Cracker Barrel or Bojangles, we would be screaming FRAUD!  ... and we would be justified in our outrage!

Why do the same rules of fairness no longer apply at SECU?