Remember, flat rate lending NEVER allows the institution to charge a fair rate. Low tier borrowers are subsidized by overcharging higher tier borrowers.
4:37pm Assume if your statement gets repeated enough, you believe in time it will become true?
Here try the old 1-2-3!
SECU is currently: 1) Offering an A-tier rate? [y/n] 2) Is the SECU A-tier rate fair? [y/n] 3) Is the A-tier SECU borrower being overcharged? [y/n]
Bonus Q: If a B-tier borrower is charged the same rate, 1) why does the A-tier rate suddenly become unfair? 2) How do you change the loan agreement to start overcharging the A-tier borrower? 3) Explain how that happen - be sure "to show your work".
I am happy to help you but you will need to answer a few questions honestly. Do borrowers with a lower credit score (<600)go delinquent at a higher rate? Is there an internal (employee) and external (mailings, collection systems, repossession expenses, etc) cost to collecting loans? Do borrowers with lower scores have their loans charged off at a higher rate? Do borrowers with a lower score require a higher amount of funds to stay on reserves with the recent CECL changes? If you answered yes to any of these questions (the answer is yes for all of them) then giving the same rate for all tiers means that you did not give the best rate possible for A-tier when factoring in risk, cost of servicing the loans, and impact to reserve requirements. The reason is that you have to factor in the cost for each tier. Same reason that life insurance pricing for a 25 year old is less expensive than for a 65 year old even if they are both healthy. If they were the same rate, the 25 year old is paying higher than they should and would most likely get their policy somewhere else. Same reason that auto insurance costs more for a 16 year old even though they have never been in an accident (I thought it was innocent until proven guilty). It is interesting that we introduce life insurance and auto insurance while you were CEO and both products take risk factors into consideration for pricing. Another interesting fact is that your credit score can impact auto insurance. Of course I know this response will most likely go unposted and no amount of logic will change your mind. So here goes another question, and answer truthfully, when was the last time you changed your mind on something when provided with facts?
You keep trying to divide members by an arbitrary line into classes. How about a radical idea - all members of the credit are in the same class - SECU members. If the deal isn't right for you, go someplace else. Historically the credit union was the best deal for the vast majority of members and SECU was incredibly successful....that is until industry standard showed up.
Question - Are those members at the very top of the B tier subsidizing those at the very bottom of the B tier? Answer truthfully...
Who draws those class lines? What expertise is involved? A member is 1 point from B tier or A tier - are they really a significantly bigger risk?
Savings and Loan debacle of the 80's replay! Gonna happen in the 20's and 30's with credit unions. The reserves will line pockets and leave the state. Writing is on the wall.
At 951, you present a decent argument in theory however we live and operate in the real world. We have 2 years of data to show race based lending is a failure. Especially compared to the PROVEN track record of success before. There was no influx of A paper loans. Any increase was minimal and negated by the massive increase in losses.
Losses and servicing are factored in every year. CDE paper are not the only ones who cause losses. While they are a higher percentage, refer back to the chart used to justify discriminating against people, the actual dollar losses between A and E paper was virtually the same.
Its a fact, the only people truly affected by race based lending are the ones who make the payments. The rate and servicing costs are irrelevant on all the charge offs where no payments were made. If race based lending worked, why aren't there more credit unions near the size of SECU?
What about all the A paper members in the mountains? Guess I should say "formerly A". Was it their fault a natural disaster destroyed everything they owned and cost them their jobs? After all, they're now " risky" people, THEY deserve to pay more.
Clearly you don't belong here, go work at a bank where the motto is 'people fleecing people'. We're supposed to be here to HELP others.
Didn’t the former CEO admit as much in a news article? Something about SECU not always having the lowest possible rate but that if a car loan from SECU was 5% and they used that rate to get a 4.8% loan somewhere else, that was fine because the member benefited.
9:16am Guess that's me, but unsure how it fits with a free lunch.
The statement was made in reference to SECU being transparent by publishing its car loan rates. Car dealers, who are always knowledgeable about rates in the market, would often simply quote a slightly lower rate then "make up the difference" with some other service, feature or warranty.
The car buyer usually focused on the rate and thought they were getting a better deal.
If it was a better deal, the credit union should not feel like it suffered a loss by not making the loan.
Car sales folks are experts in their profession and highly compensated with incentives. You can be sure this practice continues.
That's why it was naive for the new/new ELT to believe that the 70% or so of "car loans they were losing" woulds come flooding back.
Didn't happen , won't. 70% of all new cars are still financed at the dealership...not much has changed.
Now that's a "real" unicorn! 
Remember, flat rate lending NEVER allows the institution to charge a fair rate. Low tier borrowers are subsidized by overcharging higher tier borrowers.
ReplyDelete4:37pm Assume if your statement gets repeated enough, you believe in time it will become true?
ReplyDeleteHere try the old 1-2-3!
SECU is currently:
1) Offering an A-tier rate? [y/n]
2) Is the SECU A-tier rate fair? [y/n]
3) Is the A-tier SECU borrower being overcharged? [y/n]
Bonus Q: If a B-tier borrower is charged the same rate, 1) why does the A-tier rate suddenly become unfair? 2) How do you change the loan agreement to start overcharging the A-tier borrower? 3) Explain how that happen - be sure "to show your work".
I am happy to help you but you will need to answer a few questions honestly. Do borrowers with a lower credit score (<600)go delinquent at a higher rate? Is there an internal (employee) and external (mailings, collection systems, repossession expenses, etc) cost to collecting loans? Do borrowers with lower scores have their loans charged off at a higher rate? Do borrowers with a lower score require a higher amount of funds to stay on reserves with the recent CECL changes? If you answered yes to any of these questions (the answer is yes for all of them) then giving the same rate for all tiers means that you did not give the best rate possible for A-tier when factoring in risk, cost of servicing the loans, and impact to reserve requirements. The reason is that you have to factor in the cost for each tier. Same reason that life insurance pricing for a 25 year old is less expensive than for a 65 year old even if they are both healthy. If they were the same rate, the 25 year old is paying higher than they should and would most likely get their policy somewhere else. Same reason that auto insurance costs more for a 16 year old even though they have never been in an accident (I thought it was innocent until proven guilty). It is interesting that we introduce life insurance and auto insurance while you were CEO and both products take risk factors into consideration for pricing. Another interesting fact is that your credit score can impact auto insurance. Of course I know this response will most likely go unposted and no amount of logic will change your mind. So here goes another question, and answer truthfully, when was the last time you changed your mind on something when provided with facts?
DeleteYou keep trying to divide members by an arbitrary line into classes. How about a radical idea - all members of the credit are in the same class - SECU members. If the deal isn't right for you, go someplace else. Historically the credit union was the best deal for the vast majority of members and SECU was incredibly successful....that is until industry standard showed up.
DeleteQuestion - Are those members at the very top of the B tier subsidizing those at the very bottom of the B tier? Answer truthfully...
Who draws those class lines? What expertise is involved? A member is 1 point from B tier or A tier - are they really a significantly bigger risk?
In the end it's all a false choice.
great post. mic drop. the hypocrisy around rewards, given practices like one rate for all, is astounding.
Deletethat's because you believe that some members are more equal than others. why are you even at a credit union. Oh you want to turn SECU into a bank!
DeleteSavings and Loan debacle of the 80's replay! Gonna happen in the 20's and 30's with credit unions. The reserves will line pockets and leave the state. Writing is on the wall.
DeleteAt 951, you present a decent argument in theory however we live and operate in the real world. We have 2 years of data to show race based lending is a failure. Especially compared to the PROVEN track record of success before. There was no influx of A paper loans. Any increase was minimal and negated by the massive increase in losses.
ReplyDeleteLosses and servicing are factored in every year. CDE paper are not the only ones who cause losses. While they are a higher percentage, refer back to the chart used to justify discriminating against people, the actual dollar losses between A and E paper was virtually the same.
Its a fact, the only people truly affected by race based lending are the ones who make the payments. The rate and servicing costs are irrelevant on all the charge offs where no payments were made. If race based lending worked, why aren't there more credit unions near the size of SECU?
What about all the A paper members in the mountains? Guess I should say "formerly A". Was it their fault a natural disaster destroyed everything they owned and cost them their jobs? After all, they're now " risky" people, THEY deserve to pay more.
Clearly you don't belong here, go work at a bank where the motto is 'people fleecing people'. We're supposed to be here to HELP others.
Didn’t the former CEO admit as much in a news article? Something about SECU not always having the lowest possible rate but that if a car loan from SECU was 5% and they used that rate to get a 4.8% loan somewhere else, that was fine because the member benefited.
ReplyDelete9:16am Guess that's me, but unsure how it fits with a free lunch.
DeleteThe statement was made in reference to SECU being transparent by publishing its car loan rates.
Car dealers, who are always knowledgeable about rates in the market, would often simply quote a slightly lower rate then "make up the difference" with some other service, feature or warranty.
The car buyer usually focused on the rate and thought they were getting a better deal.
If it was a better deal, the credit union should not feel like it suffered a loss by not making the loan.
Car sales folks are experts in their profession and highly compensated with incentives. You can be sure this practice continues.
That's why it was naive for the new/new ELT to believe that the 70% or so of "car loans they were losing" woulds come flooding back.
Didn't happen , won't. 70% of all new cars are still financed at the dealership...not much has changed.