Perspectives on the Credit Union Market

Credit unions and banks across the country are doing their best to interpret conflicting data points of consumer credit health. Across financial services, Q2 saw lenders grow balances significantly in products like personal loans (31.3% YOY growth) and credit cards (16% YOY Growth). Credit unions saw sharp growth in HELOC (19% YOY), while the market as a whole had 2.2% of HELOC balances runoff in Q2. All lender types experienced a slowdown in mortgage originations — due in part to the rising interest rate environment. As credit unions look for growth outside of mortgage, they’re keeping an eye on rising delinquency levels over the past 12 months. Below are three trends impacting credit unions so far in 2022.

1) Lenders still lag behind regarding identity and fraud capabilities, and less than 30% are very confident in their existing defenses        

As members at credit unions are increasingly engaging through digital channels, identity fraud threats have risen exponentially. Many credit unions find themselves utilizing legacy fraud tools which are unmatched to modern fraud and identity issues. Simultaneously, the member experience suffers with inefficient processes and a one-size-fits-all identity strategy that proves too cumbersome on good actors looking to execute simple transactions online. Top lenders are working to streamline both the application and identity processes, leveraging best practices available within the systems they use today.

2) The South saw the highest YOY rise in 60+ DPD in non-revolving lending products

While aggregate delinquency remains below pre-pandemic levels, lenders of all sizes are experiencing YOY delinquency growth on non-revolving types (auto, mortgage, personal loans). Lenders in the South are experiencing the highest YOY changes in delinquency; Louisiana leads the way at +74 bps 60+ DPD growth. Northern states from coast to coast are seeing less performance slippage YOY, which suggest impacts from current economic pressures will vary by both geography and consumer base.  

3) Consumers in lower-income tiers are already experiencing financial stress — as demonstrated by deteriorating performance

Loans to borrowers in the lowest-income tiers saw delinquencies rise over the past three years; near prime consumers fared the worst. While as a whole, delinquency remains below pre-pandemic levels, consumers below the $60K income band are seeing the highest levels of deterioration. No matter what region and consumer base they serve, many lenders are ramping up account management frequency to better monitor their members’ financial health, and using lead indicators like aggregate excess payment to determine capacity to pay.