In 2008, the market suffered a horrible loss due to mortgages being repackaged that were not worth the amounts they were repackaged for. As a result, many people lost their jobs. At that time, I was working at a large credit union. I woke up one day to discover that we had lost almost 90 million dollars. We didn’t lose that money because we were mismanaged or because we had taken high risks, but because of the environment that we were operating in.
People were losing their jobs. When they lost their jobs, they were forced to make difficult choices. Our credit union had many credit cards and many car loans. As you might imagine, if you are the money manager of your household, and you’re faced with the difficult decision of what to pay and what can’t, credit cards are probably going to be the first thing that you let slide. After that, you're going to let your car loan go, and then finally, your home. Because our credit union had so many credit cards and car loans, this affected us negatively.
What happened next at our credit union was truly unbelievable. Unfortunately, after a long run of being strong and being a pillar of the community, we were forced to lay people off. We were forced to close branches. We were forced to tighten our belts. Matter of fact, I worked remotely, and every day during this period, I would wake up and I would log in via VPN. If the VPN worked, I knew I still had a job.
After the initial impact of the crisis, our leadership got together and created an incredible plan that I believe may still be useful in today’s current crisis. The first question we asked ourselves was "How do we get ahead of this?" So, just like we're looking to get ahead of the coronavirus right now and slow it down, we were trying to predict, out of all of our members, who was going to have a problem first? What would be our canary in the coal mine?
It's also worth noting that our credit union went from having six collectors to having 80 collectors in a matter of weeks. This was a major move but an incredibly smart one. What kind of move do we need to make in this regard, in terms of staffing, to help our members today? What was the canary in the coal mine?
It turned out that one simple indicator as to whether a member was going to be able to pay their bills or not was to watch for their remote deposit to stop. It was a pretty simple way to tell. If they had remote deposit and suddenly they didn't, we should be calling them because they had likely lost their job.
If you think about where we are today with the coronavirus, the stock market continually plunging, uncertainty in the markets altogether, members are probably bringing their money to you right now and unfortunately, they're putting it into volatile financial instruments like money markets, which makes it difficult to plan for. On top of that, you now have members that are going to stop receiving paychecks. They'll be sent home until this crisis passes over. Many of them do not have the ability to do their jobs from home and as a result, their income will be reduced through no fault of their own.
So, what can we do? That's what this series of articles is going to be dedicated to. The first one is the remote deposit. Today, I'm sure you have enough analytics in your organization to start looking for people whose remote deposits are stopping and if they do, you should consider working with them to help mitigate the damage. The first thing you can do is look at your skip-a-pay program. If you don't have a skip-a-pay program, now is the time to implement one. If you can allow a member to skip a payment on their larger loans, like their car loans, or smaller things like their credit card accounts, this may be the difference between them sinking altogether or making it through this.
This can be a win-win for your credit union. Taking these measures will reduce costs to the credit union in the form of fewer repossessions, fewer account closures, fewer foreclosures. This may help your members stay afloat during this crisis. What is happening right now is temporary and your members will remember how your credit union helped them through this. All you will be doing is extending out their loan, so there is no loss to the CU, and you may be helping a member not have to make the difficult choice to buy food or medicine rather than pay their car or credit card payment. Everybody wins here, and I guarantee that your members will never forget how you helped them during this time.
This is just one idea. There will be more ideas like this in the days ahead. What I'm hoping, based on our new town halls that we will be holding, starting this week is that you will bring your ideas to the table. If we're to survive this as an industry, and we WILL survive, we can do a lot better by collaborating.
For this reason, we are creating a digital platform for you to communicate what is going on in your communities, what is going on at the government level, and what you are doing in regards to this. What's working? What's not? We want to facilitate this communication between you and your peers. If there are answers, we want you to have them. We hope you will attend and we hope you will share your thoughts.
In the meantime, we will continue these articles. We will share other things we know from other organizations during the 2008 financial downturn because we believe many of the things that were done during that time will need to be done again and if we do them sooner, we're more likely to have a positive outcome, quicker.
Best Innovation Group
John Best is recognized as a thought leader and visionary of technology advancements and financial application development within the credit union industry.
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