DALLAS–Credit unions are being cautioned that loans they may now approve could be the same loans that would have been denied just days earlier.
The reason, said Brian Turner, president and chief economist with Meridian Economics, is that with a record number of consumer/member file credit scrubs taking place over the next few quarters, under the same underwriting qualifications, some credit unions could now find themselves making loans to once-troubled members who are now getting A-paper rates.
Thanks to a move by the CFPB and other regulatory advocates, the three credit bureau firms - Equifax, Experian and TransUnion – will remove the “tax-lien and civil-judgement data starting around July 1. These omissions will be made “if the data points do not include a person’s name, address and either a social security number or date of birth.” It is estimated that one in five consumers have an error in at least one of their three credit reports, Turner wrote.
“These fresh starts have the chance of boosting loan originations, particularly those for vehicles and homes - even from large banks that have pretty much stuck to strict underwriting over the past five years,” said Turner. “Credit card lending, already on the rise with credit unions, could easily see credit lines increase as much as $2,000.”
Even though applications will most surely increase, Turner added that a “credit union will have to be even more diligent in evaluating loan applications. Applications will need to be monitored for clear and steady credit patterns over the past five years with questions regarding any lapses investigated. It will be even more important to conduct income verifications and assess steady employment profiles - being empathetic to the unsteadiness of the employment sector over the past five years.”