Oct 24 2011

Superior Consumer Lenders During the Great Recession

What do ponderous wheels and successful lending credit unions have in common? In his business bestseller Good to Great, Jim Collins introduces a telling metaphor for business success: the old-fashioned flywheel.

Flywheels turn, not from one big push, but from the input of deliberate regular force. Consumer lending is similar. This brief describes the secrets of the all-too-rare credit unions that drove sustained consumer loan growth during the Great Recession. Even though each credit union was able to keep growing loans throughout the downturn, none had stumbled upon a wholly new product or program. They were adept and consistent at pushing their flywheels.

That’s not to say the successful credit unions lacked focus. All were focusing on certain practices, and some common strengths emerged:

  • Sales culture—Few felt like they had mastered it, but every successful lender we interviewed spent a lot of effort trying to improve its sales culture.
  • Consistent underwriting—The tumult that started in 2008 pushed scores of lenders to change their underwriting or exit consumer lending altogether. Many of the successful credit unions held to their standards (or tightened slightly) and kept lending through the storm.
  • Refinancing—Dropping interest rates combined with effective data mining and sales processes meant that many of the successful credit unions could capture loan growth even without a new purchase.
  • Market power—A handful of the credit unions were able to leverage strong positions in a local economy or particular product line to make themselves first-choice lenders even during the downturn.
  • Symbiotic product lines—Though this report focused mainly on auto and credit card lines, several credit unions attributed their consumer lending success to cross-selling from other, more important products like mortgages or agriculture loans.
  • Direct lending—A strong minority of credit unions interviewed got their loans the old-fashioned way: by relying on existing members, branch traffic, and steady cross-selling.
  • Indirect lending—The majority of the credit unions highlighted here captured their lending growth primarily from indirect lending. None of these was an indirect dabbler. Each cultivated strong dealer relationships, invested in technology, and set its own underwriting standards.

Most credit unions interviewed for this report drew strength from two or three of these categories, allowing them to focus on doing that particular thing well. The stories of their success and of how they plan to build on that success follow.

Ben Rogers
Managing Director, Research
Report Number 253