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American Consumer Reality Check
How Credit Unions Can Help
Office of Small Credit Union InitiativesMartha Ninichuk, Deputy Director
Credit Unions Can Help
Factor In…Recent Economy
Consumers Experiencing Hard Times
Public who says they are in the lower or lower-middle classes rose from 25% in 2008 to 40% today.
*Jan 2014 survey of 1,504 adults
30 million workers ages of 18 and 64 live on $18,800 per year.
Credit Unions Can Help
Young Adults
• Fully 37% of 18- to 29-year-olds are unemployed or out of the workforce, the highest share among this age group in more than three decades
• 27% of adults, ages 40-59, are the primary financial supporters of a grown child
• 3 in 10 young adults have lived at home during the economic recovery
Increased Underserved Market
Credit Unions Can Help
United States underbanked financial services are a $78 billion marketplace that encompasses close to two dozen products
and services provided to over 68 million consumers.
CFSI 2011 Underbanked Report
Banked and Unbanked• 17 million adults live in unbanked
households• 51 million adults live in
underbanked households
www.fdic.gov/householdsurvey
Credit Unions Can Help
Use of Alternative Financial Services
• One-quarter of households have used at least one AFS product in the last year
• 1 in 10 households have used two or more types of AFS products
• In all, 12 percent of households used AFS products in the last 30 days
Credit Unions Can Help
What are Alternative Financial Services?
Financial services offered outside of the traditional banking system
Two general categories: 1. Transactional - Check Cashing, Money Orders,
and Bill Payment2. Credit – Payday Loans, Rapid Anticipation Loans
(RAL), Rent to Own, Buy Here Pay Here, Pawn Lending, Auto Title Lending
Credit Unions Can Help
Why Alternative Financial Services?
• Transactions are done all at once• Costs are transparent and easily
understood• Know what they will end up with ($)
Credit Unions Can Help
Why Alternative Financial Services?
Find mainstream financial services difficult to manage
No margin of error NSF Fee more costly
than check casher cost
Cannot qualify for credit
Poor Money Management Skills
• Overdraft fees were too high
• Too convenient to let the financial institution cover my NSFs
• Paid hundreds of dollars in fees
Credit Unions Can Help
Create an Environment
Instill confidence by offering guidance• Financial coaches, financial education• Teach responsible money management• Keep members best interests at heart• Look at your fee structure, can you make it
easier to understand?• How about products?
AFS users have to be convinced joining your credit union is in their best interest.
Credit Unions Can Help
Fight the Inconvenience Reason
Inconvenience is the most cited reason for use of non bank check cash providers
Mobile Banking Highest usage among:• Minorities• Younger generations• Persons with low income
levels
96 percent of the world is connected via cellphone64% of the unbanked own cell phones
Credit Unions Can Help
Underbanked Use of Cell Phones
• 29% used mobile payments in the past 12 months
• 62% of those who used mobile payments to pay bills
= ACCESS
Credit Unions Can Help
Financial Services - Cell Phones
Consumers and Mobile Financial Services ReportBoard of Governors, Federal Reserve System, March 2012
Credit Unions Can Help
Why Mobile?
Information on credit union products and services made
easily available
Reach your members anytime
anywhere
Information on credit union products and services made
easily available
Update members on
promotions and offers
Credit Unions Can Help
Why is Cell Phone Use Attractive
• Reduced Transaction costs• Saves Time-which they don’t have• Easy to understand• Greater accessibility to financial products and
services
OSCUI is holding a Mobile Services Webinar July 9, 2014
Credit Unions Can Help
Transaction Services
ATMDebit Card
Prepaid CardsCheck CashingMoney OrdersBill Payment
eBanking
Low barriers with easy access to deposits
Credit Unions Can Help
780CreditScore
690CreditScore
20% of today’s population 40% of consumers,difficult to get credit under any terms
Credit Unions Can Help
Lower Interest Rate for Timelines
LIFT• Initial interest rate based on credit score• On time payments for 12 months secures a
reduction in the interest rate for the next year
www.filene.org
Credit Unions Can Help
LIFTCredit Union sets:• Annual rate reduction percentage• Floor rate on loan• Rate change frequency• Maximum number of times the rate is
allowed to reduce• Number of late payments allowed before
disqualification• Grace period on payments• Maximum rate reduction
It’s a web based tool
Credit Unions Can Help
Benefits
Member
• Tangible rewards for positive payment behaviors
• No action required for rate reduction-automatic
• Build up credit score while reducing debt
Credit Union
• Reduced collection efforts and cost
• Encourages those members routinely late to pay on time
• Increased member loyalty and referrals
Credit Unions Can Help
Loan Products
Small balance loansPayday Alternative Loans
Savings secured VISAsCredit Rebuilder Loans
National Credit Union FoundationREAL Solutions
Credit Unions Can Help
Savings Products
Small Saver ProductsLow barriers to open
Incentive to a savings goalPenalty for early withdraw
No or Low monthly maintenance fee
Credit Unions Can Help
Savings Products
Reverse Tiered Savings
• Inverse interest rate structure• Higher interest for lower deposit balance accounts• Encourages persons of modest means to start saving• Usually packaged with direct deposit and checking
account
National Credit Union FoundationREAL Solutions Savings Products for Low Wealth Households
Credit Unions Can Help
Savings Products
Wealth Builder (Atlanta FCU)• $25 opening/ $25 Mo. Direct
Deposits thereafter• No withdraws allowed until $1000
reached• Thereafter, withdraws limited to 2
free a month• If monthly deposit is not made for
two months, account closed and transferred to a regular savings account
National Credit Union Foundation
REAL Solutions Savings Products for Low Wealth Households
Credit Unions Can Help
Millennials Family Ties:
• 50% said they talked to their parents on a daily basis• 74% reported getting financial help from their parents
in the last year• 64% reported getting help from their parents with
running errands, housework, or home repairs
PEW Research
Credit Unions Can Help
Parental Expectations
Financial Independence
• In 1993, 80% of parents said that children should achieve financial independence by age 22
• Now 31% say this milestone should come at 25 or later
• This factor alone could reinforce the boomerang trend for a decade
Credit Unions Can Help
Parent Feedback
• Guilt and stress with children moving back home
• Unprepared to help children find their way into their own space
• Discussing moving out and paying rent were very uncomfortable conversations
Credit Unions Can Help
Relaunch
Two accounts are opened:1. Simulating household expenses (rent, utilities,
insurance, etc.)2. Savings
(Deposit amount is agreed upon)Credit Union Provides:• Online reward modules-budgeting, paying off student
debt, financial management• Once completed a bonus deposit is made to the
account
Credit Unions Can Help
Negative to Positive
• Parent and grown child are on the same team
• The credit union is the neutral, trusted resource
• Provides support and cheering on
• Diffuses uncomfortable situation
WWW.FILENE.ORG
Credit Unions Can Help
Assist Members in Building Their Credit
• Risk based pricing• Report to Credit
Bureaus• Williampaid.com
has a partnership with Experian
Credit Unions Can Help
Effective Outreach
• Community outreach collaborations– School districts, volunteer income tax assistance
(VITA) sites, community groups, nonprofits, government agencies, other organizations
• Multi Lingual Staff• Marketing in target group’s language• Understand target group concerns
It takes time and effort
Credit Unions Can Help
LID vs. Non-LID by Asset Size, 2013Q1
LID
Non-LIDAsset Size <$50M $50M-<$500M $500M+ <$50M $50M-<$500M $500M+
Count 1415 436 59 3100 1379 364Median Asset Size (million) $7.82 $108.50 $879.93 $10.86 $119.86 $1,000.53CAPITAL ADEQUACY Net Worth/Total Assets 11.73 10.42 10.12 12.27 10.40 10.10
ASSET QUALITY Delinquent Loans / Total Loans 3 1.67 1.04 1.06 1.33 1.03 0.97
* Net Charge-Offs / Average Loans 0.64 0.49 0.64 0.46 0.54 0.66EARNINGS * Return On Average Assets 0.21 0.61 0.99 0.10 0.53 1.01
* Yield on Average Loans 6.55 5.64 5.57 5.96 5.26 4.96
* Operating Exp./ Avg. Assets 3.99 3.81 3.45 3.40 3.50 2.76
Operating Exp./Gross Income 82.53 73.92 64.00 84.00 74.89 58.67ASSET / LIABILITY MANAGEMENT Total Loans / Total Shares 55.73 64.94 69.11 52.04 62.19 68.37PRODUCTIVITY Borrowers / Members 39.85 44.88 49.35 39.41 46.70 54.42OTHER RATIOS (FPR) * Net Worth Growth -5.87 7.00 86.06 -12.28 -8.82 10.38
* Market (Share) Growth 4.37 19.64 82.05 -0.31 -0.95 15.45
* Loan Growth -16.20 3.33 80.32 -18.56 -15.53 2.09
* Asset Growth 3.11 18.35 82.03 -1.81 -2.12 13.73
* Investment Growth 26.33 46.91 88.22 15.22 19.67 33.10
* Membership Growth -9.29 8.40 58.60 -14.96 -9.64 6.43
Credit Unions Can Help
Build a Business Case• State your business goal• Provide a budget - project costs,
ongoing maintenance expenses and estimated returns
• Provide scenarios - best vs worse case
• Consider the Culture-internal and external
• Don’t ignore Non Financial Impact– go beyond what the numbers show; strategic impact is important too
• Policies, procedures and staff training
Credit Unions Can Help
OSCUI
• Grants and Loans for Low Income Designated Credit Unions
• Consulting Assistance for credit unions under $50M in Assets
• Free Training
• Partnerships and Outreach
Credit Unions Can Help
Stay Informed
February 2013
FOCUS is the monthly e-Newsletter of the Office of Small Credit Union Initiatives (OSCUI). It focuses on helping small credit unions achieve success by providing news and highlighting opportunities. Click here to subscribe to FOCUS.
Featured this Month (Click on a heading to go to the article.) Headliner: "Small" CU's now BIGGER!
OSCUI in the News: Recent news about our office and services
Consulting: Preparing for a consulting visit
Grants & Loans: Frequently asked questions about grant reimbursements
Partnerships & Outreach: Teaching youth to save
Training: What's happening in Training?
Happening in OSCUI: Information and updates
Announcements: Non-NCUA sponsored events and opportunities
NCUA OSCUI Contact Page
Feel free to contact our office with questions:
Consulting OSCUIConsulting@ncua.gov.
Grants & Loans OSCUIApps@ncua.gov.
Partnerships & Outreach Partners@ncua.gov.
Training OSCUITraining@ncua.gov.
Credit Unions Can Help
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