SECU Risk-Based Lending: Reality Check

... it can't be me!

So today, lets start to look at those new risk-based lending enhancements "approved by the SECU Board" - emphasis added by the "SECU Executive Leadership Team" to assure members know who to blame for all this, as the SECU lending yacht continues to list. 

Might be well to note that the announcement doesn't indicate that these "enhancements" were unanimously approved by the SECU Board. Given the ouster of all incumbent directors last year, not hard to imagine that these changes were a split decision. If you'd like to check behind me, ask your branch to email you a copy of the "All Staff - Board Lending Policy Changes" memo dated 4/15/2024. 

You do have a right to know what is being done to you, regardless of what the "Executive Leadership Team" might think.

Where to start? The memo covers a lot of territory - a deep and dense wheelbarrow load!

1. The "Executive Leadership Team" likes to call their overall lending strategy "tier-based pricing" (TBP) - "race-based lending" (RBL) seems more accurate. But, lets not argue! What is undeniable is the "Executive Leadership Team's" lending strategy  - whatever you call it - has increased loan losses by $125 million annually and resulted in delinquency 3x the industry standard since 2021. TBP - their strategy - is not working! 
2. The Consumer Financial Protection Bureau (CFPB), a federal financial institution regulator, maintains a national, consumer complaint data base for each financial institution. SECU, with 2.5 million members, had a remarkable record of less than 1,000 total complaints up until September, 2021. The rate of complaints by SECU members over the last 18 months is 100% higher than over all prior 10 years -  the majority of complaints are over lending.
3. According to the 4/15/2024 "enhancement" memo: "The Board spent over a year reviewing information, requesting data and debating how to meet the needs of all members [their emphasis]."  But, then announced that members with credit scores less than 600 are: "No longer eligible for Open-End lines of Credit, Visa Credit Cards, Unsecured Term Notes, and Home Equity Lines of Credit." The "Executive Leadership Team" must have their own, unique definition of "all members"!
4. The "Executive Leadership Team" also assures us that: "... the Board was lowering the rate on loans to members with credit scores below 600 and aligning their rate to what historically would have been the one rate model for all members." Folks, if you can make sense out of that statement, please explain it in the comments. Seems to acknowledge that the fair, one rate model for all members is better. But, the "Executive Leadership Team" believes the best way to achieve that fairness is to stop lending to those members all together?!? Incredible lending logic, don't you think?
5.  And then there is this statement: "... the Board explored various pricing scenarios, looking to provide a very competitive, if not the best, rate for all members..." Hard to believe "the Board" is really the culprit here, but that's what the "Executive Leadership Team" is telling all the staff!

 

... hang tight there is more!

  

 

 

Ben Franklin Comments On Risk-Based Lennding At SECU...

 

    ... anyone disagree on that? 

Why keep harping on and on about risk-based lending at SECU? Because risk-based lending is failing and the costs to members of this error in judgment by the Board of Directors are escalating rapidly.  

That it is possible for SECU's Legacy Board to err should not be in dispute. The Board kicked off its losing streak with a remarkable CEO mis-hire in 2021. No argument there! That CEO, eighteen months later, abruptly disappeared without notice nor explanation; although a "$6.2 million" related liability remains on SECU books to be satisfied. 

A 40-year working partnership with Local Government FCU evaporated in the face of a "no formal proposal-proposal" Board merger threat. Board-centric ambitions for "regional expansion", "anyone can join", and "commercial banking" have fueled distrust by a skeptical Legislature and opposition by the banking industry. An 85-year consecutive record of growth has ended and savings rates are no longer among the best in the market.  Operating costs have soared.

The SECU membership loudly signaled its displeasure with these misadventures by booting out all Board incumbents at the 2023 Annual Meeting. But, the Legacy Board does not like to listen and persists with its destructive pursuit of cascading calamities.

How do you know risk-based lending is failing? Even if you are not yet convinced that risk-based lending discriminates against the majority of SECU members - especially those who are young, black, female and of modest means - there can be no argument about the actual, severely adverse financial results. Loan losses at SECU have [link] jumped from $70 million in 2021 to $196 million in 2023 with more bad news dead ahead.  Loan delinquency - well below "industry standards" in the past - is now 3 times higher [link] than other credit unions of similar size in 2024. Those are facts - indisputable!

Risk-based lending is now costing SECU members - that means you - literally hundreds of millions of dollars annually in excess interest costs, higher operational costs, and loan losses. That's why the Board is desperately scrambling with "new RBL enhancements" - trying to lipstick the porker!

But what is really going to destroy the reputation of SECU is when you find out that the Legacy Board believes all this is your fault! Moi?

That's right, you're the problem! 

 

  ... stay tuned to learn how you have erred!

SECU Board Of Directors Announces More Risk-Based Lending (RBL) Restrictions...

  ... House of Cards?

Well it is official, many members need no longer apply for a loan at SECU - their credit union!  

The SECU Board has recently announced its "new and improved, member friendly" risk-based lending (RBL) enhancements - which are - as is now normal for "this Board" - anything but! We will be talking about RBL for the next few days. 

SECU members need to fully understand the disastrous impact these new lending practices have - and will have - on their individual financial health and on the financial performance and reputation for fairness of SECU. Staff morale and member support are also in jeopardy.

These new changes are an acknowledgement that RBL is not working, although a full, frank admission of guilt is still "a bridge too far" for the senior staff and Board.  Members have seen this reluctance to confront the full truth many times over the last two years - a on-going commitment to a lack of candor, but always committed "in good faith". 

But lets go slowly and study all these changes one step at a time. First and foremost, you should note that the senior staff is "sticking the Board" with full accountability for adopting RBL. Here's from the memo to all staff: "The SECU Board of Directors approved changes to our pricing structure for consumer loans (moving to three tiers instead of five) and, to help minimize risk with these changes, the Board also established additional product limitations for borrowers with credit scores below 600." [credit scores range from 350 to 850].

From past experience in business, when "problem clouds and controversy" appear on the horizon; it is not unusual for management to hedge their bets and identify - early on - scapegoats for their bad decisions and poor leadership. The SECU Board has now been fully anointed with the responsibility for RBL. Buck has been passed, the Board now owns - and holds - the bag! 

😎 In justifying this change, "The Board" makes a beyond obvious statement, that moving from 5-tiers to 3-tiers will be easier and less costly to administer. Why would "The Board" have thought otherwise last year when they adopted the 5-tier system after: "The Board spent over a year reviewing information, requesting data, and debating how to meet the needs of all members."? 

That 5-tier "Board" mis-decision cost SECU members in those 2 unjustified tiers millions in excess interest charges. [no mention of refunds!]

😎  Question for the Board: Do you think 1-tier would be "easier and less costly to administer" than 3-tiers?   

"Your call"!    

  ... in member lending,  SECU is clearly no longer playing with a full deck!

SECU's "New Improved" Risk-Based Lending Increases Chances For A Quick Decision...

😎  Heard about the new risk-based lending (RBL) policies and procedures just introduced by your Credit Union? [link] No, didn't think so.

Like most of the "member enhancements" introduced by the SECU Board over the last two years, these new rules and limitations are so wonderful that the Legacy Board evidently doesn't want to tell you about them! 

Must be part of that "new/new", industry standard marketing focus. Guess its "Don't tell, don't ask"?!

✅ Here's a graphic of the new policies and limitations :

 

                A Rube Goldberg design? 

 ✅ Here's the new application process:

  

✅ Here's the quick decision more members are likely to receive:

  ...  "enhanced" again! 

✅ Don't you feel it?

 

... can't wait for "the spin"!

SECU: The "New" Wachovia? The Undisciplined Pursuit Of More...

    

     ... a real industry standard.

"Once upon a time"... but not too long ago, most everyone in finance agreed that Wachovia Bank & Trust  - headquartered in Winston-Salem - was the premier bank in the U.S. of A. 

Wachovia's reputation was sterling, its financial practices impeccable, its ethical principles unquestioned.  Wachovia pledged high quality, local service from a dedicated "Personal Banker" to its customers - and delivered it!

Home-grown talent - thoroughly trained, hands-on leadership, community focused, an earned reputation for offering principled advice and intrinsic value in all services. The owners of many small, local banks across the Southeast sent their sons and daughters - their future leaders - to learn the banking trade as apprentices with Wachovia. 

There were several other very prominent banking "brands" in North Carolina - NCNB, First Union, BB&T, First Citizens - but Wachovia was foremost.

But then, Wachovia's board and leadership lost it's way - they forgot what they had,  they forgot who they were...

 

... next chance, drop by your local Wachovia branch and ask the employees what happened. 

 

"The best prophet of the future is often the past."