SECU - Risk-Based Lending: What About Profitability, Loan Losses, And Fairness? # 5

  ... was SECU formed to leave money in members' pockets? Or take it out?

Going to try to move in a slightly different direction today. Analyzing loan losses/chargeoffs will take some effort and a look back; and, of course, "where the rubber hits the road" - or "the stuff hits the fan" - on risk-based lending is the critical issue of fairness. Fairness, as we glimpsed in #3, "A-Paper for Everyone?", can quickly become a twisted issue.

Is risk-based lending more profitable than "same rate for everyone" lending? (Y/N?) Of course it is; that's why banks have adopted it! Not too hard to figure out how that works. Interest charges to members under the "same, A-rate for all" standard of the past are going to be less than RBL where you charge "B" members a little more, "C" members a good bit more, "D" members a lot more, and take "E" members to the cleaners. Add them up and the total interest taken out of members' pockets will always be more - hope no one argues with that one!

How much more is SECU charging its members under RBL? Good question! SECU knows the answer, but hasn't told us yet. Again, not too hard to compare the loans under each lending strategy. You can be assured that the extra interest charged to members under RBL will be in the hundreds of millions of dollars - very big bucks, out of small pockets. 

Does SECU need to take this money from members to be "more profitable"? (Y/N?) No, as CEO Leigh Brady proudly proclaimed at the Annual Meeting: SECU has just finished its 5 "most profitable" years in history (See #2). - all BTW before the introduction of RBL! So, this will just be "piling on" in terms of "profitability" - at the members' expense. 

If making more money is not the issue with risk-based lending at SECU, then charging some members higher loan rates must have to do with the cost of those extra loan losses which may arise with lending to members with lower credit scores. (Y/N?) Certainly could be, because SECU is currently experiencing a higher % of losses on loans to folks with lower scores . 

Surprised I would say that? (Y/N?) Why? 

If you could "resolve" the loan loss issue, would you be okay with the same fair rate for all members? (Y/N?)

... this may get interesting!

SECU - The Pause That Refreshes: Why Not Rebuild Credibility? #4

   If you're right about risk-based lending, why not pause and reconfirm your view with the membership?

Yesterday was an interesting study in human character! That time honored phrase: "People Helping People" seems to have lost its' cachet with some folks. But in the prior posts, heard little objection to the statements that all members prefer lower loan rates and that SECU does not need risk-based lending to be financially successful - now or in the future. 

Let's try a couple of simple ideas today and see where we go. First, does anyone disagree that there is a fierce, honest difference of opinion about risk-based lending among the SECU membership? (Y/N?)  That that disagreement has been harmful to the reputation of SECU? (Y/N?) That given the wide divergent of views on the fairness and validity of risk-based lending that one side or the other - or perhaps both! - may have their facts wrong? (Y/N) That SECU might benefit from a pause in the further implementation of RBL to re-discuss and re-explain the value of RBL to the SECU membership? (Y/N?)

Why wouldn't the SECU Board and leadership agree to pause and re-discuss such a divisive issue with the member-owners of SECU? Wouldn't you, if you were a member of the SECU Board? (Y/N?) Was the message unclear from the membership to the SECU Board at the 2023 Annual Meeting? (Y/N) Will the message be different at the 2024 Annual Meeting, if the RBL issue is not resolved? (Y/N) 

If critics of risk-based lending are misguided, then take time to correct their reasoning. Where is the harm in that?  The current pursuit of risk-based lending without further discussion appears self-destructive. Has listening become dangerous? (Y/N?) Why rush into a potential, further disaster?

✅ And, just in case you hear some "blah-blah-blah" about "we must proceed", tiers/rates are in place, programming is complete, commitments have been made, "this train has left the station", etc, etc ... the typical you know what. 

😎 There is a simple answer to all that B.S.! If acting in good faith and maintaining the respect and trust of the membership is important to the SECU Board ....  the easy solution is ... ready, figured it out, it ain't that hard....