Sunday, May 19, 2024

About That Exceptional "Backward Looking" Leadership Thinking At SECU: Roadkill-Based Lending (RBL) ...[Don't Miss Range War Outbreak In Comments!] ...Yes, it was!

How do you know?  Because the 5-tier RBL system didn't even make it a year, before the "We Board" had to bury it!

😎 Bad ideas have a tendency to come with a distinctive stench, like week-old roadkill. And 3-tier roadkill really doesn't smell any different than 5-tier roadkill, does it? Sniff closely!

The one upside to the 3-tier pullback is SECU leadership doesn't have to admit and apologize for another major blunderbust.  Bad business for all members? Yep, but don't take my word for it, take another look at the SECU financials [link] - loan delinquency has jumped from $200 million to $700 million. Actual loan losses in the first quarter 2024 were $72 million [link], which puts SECU on target for @$250 million in losses for the year - unprecedented! 

😎 Something stinks doesn't it! Well, let me give you a couple of examples of SECU's RBL problem by parsing statements from one "overly self-assured, 👽 extra-terrestrial commenter" who supports roadkill-based lending, despite the undeniable financial decline:

👽  " Credit scores strongly rank order risk. That's true for every lender, product and geography, demographic segment, etc." 😎 True! You can "rank order" any group by height, weight, race, gender, age, social status, or even some secret credit score algorithm you can't explain. The harm and disparate impact occurs through the misuse of this type "profiling" to unjustly harm the people in a group.

👽 "Higher risk borrowers being charged more than before? Yes, but that doesn't equate to being over-charged. " 😎 Thank you for the simple, public admission and confirmation that SECU is in fact charging the members in most tiers higher rates than in the past. An SVP of Lending can be found on the internet stating the excessive rates adversely affect over half of SECU borrowers!

👽  "If all members pay 8% for a car loan, and the market is giving 6% for low risk and 10% for higher risk, the lower risk members are subsidizing the higher risk members." 😎 If the A-tier market rate is 6% as you say, what is the harm in offering that 6% A-rate to all members, as was done in the past with best rate for all members? 

👽 "How do you think it's acceptable and in fact desirable that a loyal, credit-worthy SECU member has to go somewhere else for their loans or pay way more than they deserve." 😎 I don't. If SECU charged all members the 6% A-rate as you described above, each and every member would get the best rate available in the market. 😎 Why do you object to being the low cost provider to all members - no risk of possible disparate impact either, is there?

👽 "Now, everyone charged is priced according to risk." 😎 Then why are you making so many more bad loans than in the past - delinquency and loan losses are soaring? 😎 Or haven't you noticed?

👽 "SECU losses are coming from higher risk borrowers who didn't pay a rate relative to their risk." 😎 You're saying that having a lower rate caused members to default on their loans? 😎 Really? 😎 You believe that?

👽 "That impact [loan losses] on earnings is suppressing deposit rates, all else equal." 😎 Thank you for publicly acknowledging that the majority of SECU deposit rates are not market competitive. Informed analysts know that the "suppressed" deposit rates are the result of 1) a poor longer term investment strategy which totals @$12 billion yielding @3% and 2) the @$8 billion in recently made long-term, fixed rate mortgages which suffer from the same low yield problem. 😎 Neither of these problems were caused by the SECU membership.

👽 "You can't rationally argue that the models, in and of themselves, discriminate, as they treat everyone the same." 😎 Are you aware that every credit bureau includes a disclaimer that credit scores are backward looking and are not predictive of the future performance of a new loan by an individual borrower?

👽  "Credit score models, by very definition, are non-discriminatory because they apply the same factors to everyone." 😎 Are you saying that the borrowers who default are paying the higher rates in the B, C, D, E-tiers?  Have you thought through that idea closely? 😎 Doesn't "default" mean "doesn't pay"? The folks in these tiers who do repay their loans are the ones actually paying the excessive interest rates, aren't they? Charging excessive, unnecessary interest rates to members who do repay is unfair and discriminatory, isn't it? Wouldn't you call that financial harm disparate impact? 

👽 "On lending discrimination; any regulator anywhere will tell you the fair lending risk is lower with the use of scoring models." 😎 Would you please cite a few of your sources for this statement?

... BTW why did you have to "eat crow" by abandoning the 5-tier "roadkill-based lending" model?  

😎 How did you get that so wrong?**   ** 👽 E.T. "explains things" in the comments!