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SECU says expanding its pricing practice enables it to be a competitor across market rates for all, not just some.
One thing is for sure, members who attended Tuesday’s annual meeting of the $49.6 billion State Employees Credit Union in Greenville, N.C., do not support the board of directors’ controversial decision to implement risk-based lending, in part, because it breaks the credit union’s successful 85-year cooperative philosophy of treating every member fairly and sharing the benefits of membership.
What’s more, SECU members voted for three new board members who were self-nominated, defeating three incumbent board members who were nominated by the credit union’s nominating committee.
Of the approximate 25 SECU members – including former executives, employees and a board member – who voiced their opinions during the annual meeting, the majority spoke against risk-based lending to include credit scores. Only two members indicated they supported the new lending policy.
Risk-based pricing methodologies include factors such as the length of loan terms, new versus used cars and loan to value on mortgages. The board decided to expand its current methodology to include credit ratings. SECU said expanding its pricing practice enabled the credit union to be a competitor across market rates for all, not just some.
SECU President/CEO Leigh Brady said just like consumers who search for better rates for their deposits, they also search for the best rates when it comes to loans.
“Our low loan to deposit ratio was sitting in December of 2021 at 53.47%, meaning we were only loaning out about half of the deposits we were bringing in. The highest in the last 15 years has been 78%,” Brady said. “And members historically have always told us that rate is the driver for their business. So in taking a good look at the data, what we found is from July 1, 2021 to June 30, 2022, SECU members borrowed $54.3 billion, but $41.8 billion of that $54 billion was borrowed somewhere else other than SECU. And 70% of that borrowing elsewhere was high credit tier members. They were not borrowing from SECU.”
After many months of deliberation, the board voted to proceed forward with tier-based pricing starting in the auto loans space to see what the results would be.
“And you have to take delinquency into account as well,” she added. “It’s been rising in auto loans, it’s been rising in unsecured personal loans and credit cards. E-tier borrower’s 60-day delinquency ratio at SECU is 37 times what an A-tier borrower is. It’s a fact and it’s critical that SECU has solid high performing loans to help build the foundation that is going to help us have more flexibility to serve those with less stellar credit or help us pay higher deposit rates. Quite frankly, we need the higher credit score members to come back to SECU for their lending.”
According to Brady, it’s been working.
The average origination volume per month has increased by a total of 35.1% when compared to February 2023, which was the month prior to the tier-based pricing going live in March. Moreover, from February to August 2023, the credit union has seen an 81.7% increase for A-tier borrowers, a 45% increase from B-tier borrowers, a 21.4% increase from C-tier borrowers and a 19.2% increase from borrowers with no credit score.
But many SECU members didn’t seem to be convinced by the data.
Michael Clements, a 41-year member of SECU, argued tier-based lending discriminates against many members and the fact that many other financial institutions use this policy is immaterial.
“We prided ourselves not being like other financial institutions,” he said. “These changes will put many of our members at a clear disadvantage. Is our new mission statement people helping high-tier people or when we say members first are we talking about a specific group of members? I ask you, are we still doing the right thing?”
Mike Lord, who worked at SECU for 46 years and served as its CEO from 2016 to 2021 when he retired, agreed.
“Credit score pricing is a discriminatory scheme which disproportionately and adversely impacts new college graduates, African Americans and borrowers who might have suffered a job loss, divorce or incurred major medical bills,” Lord said. “It has created second class members who now have to pay as much as four-and-a-half percent higher interest rates than fellow members to finance the same car or truck. The board plans to implement this higher rate scheme for 30-year mortgage loans in the future. It may be an industry standard, but it’s shameful and heartless and is costing thousands of members, thousands of dollars more when they borrow money that in the past, they used to provide better lives for their families. We need board members who will treat our members as people and not as numbers. Credit score determined interest rates are unnecessary and this practice should be discontinued.”
Kimberly Morgan, who worked at SECU for 36 years, said rarely did she see a credit report without blemishes.
“With every loan I wrote, I appreciated the fact that our members were helping their fellow members in need and all members were equally important,” she said. “To have a member enter your office in the depths of despair and leave with the hope of better days was very humbling and exemplified our philosophy of people helping people by doing the right thing. It made life changing difference in countless lives because there was a difference and that was the State Employees’ Credit Union.”
While an estimated 20 members spoke against the credit union’s new lending policies, only two members spoke in favor of it.
“There’s been a lot of talk about risk-based lending. Let me tell you how I see it,” SECU member Dale Turner said. “When you’re lending to your members at a 40% to 50% loan to share ratio, that’s horrible. You are not meeting the needs of your members. And let me put it in raw terms. If you’re treating everybody exactly [the same] with a 540-credit score to an 850 (credit score) – what is that? In the simplest terms, it’s socialism. Is that what you want? If you want socialism, go to China, go to Russia, go to Cuba. But please not in my North Carolina.”
At the end of the meeting, SECU Board Chair Chris Ayers announced the number of votes each candidate received: Incumbent Alice Garland, 5,880, incumbent Thomas Parrish, 6,239, incumbent Joanne Sanford, 5,982, self-nominated candidate Michael Clements, 6,372, self-nominated candidate, Barbara Perkins 7,096, and self-nominated candidate, Chuck Stone, 6,907.
“I hereby declare that Barbara Perkins, Chuck Stone and Michael Clements have been elected to the State Employees Credit Union board of directors,” Ayers said and adjourned the meeting.
Based in Raleigh, SECU is the nation’s second largest credit union by assets and serves nearly 2.8 million members.
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