Predatory Lenders Lean into Data and Digital. So Should You.

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Keith Dunlap
Director, Sales
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Simple analytics and digital strategies set credit unions up for right-now impact.

Freshly released data on the financial health of credit union members suggests as many as one-third are living paycheck to paycheck. Do you know which of your members falls into this category? Chances are they will not reach out to you to confess their fears. Your credit union may have to go to them.

When we really stop and consider how quickly things can change for an individual or family, we can see that any member in “good” financial standing today can be a member in financial distress – and a payday lending customer – tomorrow. Any of the following can cause financial strain:

  • Job loss
  • Reduction in salary and/or overtime pay
  • Relocation
  • Catastrophic or serious prolonged illness
  • Unexpected injury or death

As digital disruptors join predatory lenders in the battle for business, it’s becoming increasingly important to have a high level of member intelligence so you can more effectively fight the good fight. We see all kinds of for-profit schemes, like high-interest buy-now-pay-later or payday loans, targeting people in financial distress. Often, they’re disguised as “digital experiences” to give vulnerable users a sense of normalcy, perhaps even community.

Credit unions can battle back in two distinct ways. First, by identifying those members most likely to need a quick infusion of cash to weather a financial storm. Second, by offering digital-forward solutions that make engaging with relief-oriented products not only simple, but reassuring.

Identifying the Right Members

Creating a list of members who live paycheck to paycheck can be accomplished in a couple of ways. Gathering up those members with consistently low checking account balances and regular overdrafts is a great place to start. A pattern of increasing overdrafts, especially, can be an indicator of trouble ahead. Studies have shown consumers who incur an abundance of fees often leave the mainstream financial system, making it even harder for them to receive aid, such as stimulus funds or help from their credit union.

This list can then be paired down by other attributes, such as children in the home or a large debt load. Using what we know about the pandemic’s disproportionate effects on people of color or in certain age or job categories, you might also consider honing your list down to members who are most vulnerable by those standards to have the greatest right-now impact.

Digging into ACH data to look for transactions to and from local payday lenders is also an option. That’s a task that will provide a pretty fool-proof list of members currently engaging with businesses that may not have their long-term best interests at heart.

Another (less analytics intensive) way to find out who is struggling is to ask. Via online or mobile banking, prompt the member to complete a short questionnaire explaining their financial distresses and debts owed. You might also ask the member to watch a short financial education/literacy video and track who completes or abandons the experience.

Offering Digital-Forward Solutions

Digital-forward can mean many things. A key attribute when we’re talking about cash-infusion during tough times is self-service. Giving stressed members a simple way to raise their hands for help checks off a couple of boxes. One of those boxes is avoiding the kind of face-to-face engagement that can feel embarrassing for a member in a tight spot. Are there ways to digitize even the research segment of a member’s journey, such as integrating a short-term loan repayment calculator on your website or mobile app? Or adding a comparison chart between the average payday loan and the alternatives provided by your credit union?

This is not to say that a deeper level of engagement can’t come farther down the road. Credit unions may do even more harm by offering fast fixes if they aren’t also making an effort to guide financially vulnerable members toward longer-term financial wellness. Data analytics can be a terrific ally here in determining which of a lending product’s users are likely to be receptive to coaching.

Offering Relevant Help Now, When Members Need It Most

Analytics and digital strategies are responsible for helping organizations give their constituencies exactly what they need the instant they need it. But, there’s a flipside to that coin. Those same strategies and technologies enable less-than-reputable organizations to offer things consumers DO NOT need at the exact time they DO NOT need it. It’s no coincidence that complaints to the Consumer Financial Protection Bureau (CFPB) were up 60 percent in 2020.

For years, financial institutions have deployed analytics and digital technologies to protect consumers against fraudsters. Lending teams can do the same for their communities’ most vulnerable borrowers.

So many Americans need help at this very moment. Some are ready to rebuild their finances after more than a year of financial trouble; others are still in the throes of job losses, unexpected expenses and health issues. Credit unions have a responsibility to find and serve these individuals with truly meaningful and relevant solutions. Even simple analytics and digital strategies can make all the difference to assisting more members right now.