MOHEGAN LAKE, N.Y.—As analysts advise credit unions to either innovate or partner with fintechs to keep the loan portfolio growing, one small CU is working with a startup that has helped boost the loan portfolio by 4% in three months.
The $52-million Hudson River Financial Federal Union is partnering with SimplyCredit, a San Francisco-based fintech company that lets the credit union’s members consolidate high-cost credit card debt and sweep it to a line of credit at the CU.
“It’s been the most successful product launch we’ve ever done,” said CEO Tom Powers. “It’s important to look into fintechs these days. They can’t be ignored, they are here, and they can help. You want to choose wisely. As you know online lending is the way Millennials are moving—they do everything on their phones.”
Indeed, most of the credit union’s applications for the line of credit are coming via cardholders’ phones, Powers reported.
Tom Powers
Simple Interest
Once approved, members are issued a new line of credit at a low, simple interest rate compared to high-rate store cards to pay off existing and newly occurring credit card balances. SimplyCredit then makes monthly payments directly to credit card companies on behalf of the members, consolidating balances into a single revolving line.
Hudson River Financial will go as low as 4.99% for members with the best credit.
In addition to the low rate, another advantage for borrowers is that they can keep their current store cards, use them and receive loyalty points, but then avoid the high rate.
“Every 15 days SimplyCredit is sweeping your card balances and bringing them over to your line of credit here,” explained Chris Powers, director of lending and Tom Powers’ son. “You never pay a dollar of interest to the high-rate cards anymore. Just make one monthly payment on your line of credit. So you are saving interest on the store cards, keeping your rewards points and making one payment each month.”
Hudson River Financial pays SimplyCredit two percentage points on outstanding balances in the program.
“Therefore, if a member pays us 9%, the credit union receives 7%,” said Tom Powers.
Strict Underwriting
Just as it is important that the credit union choose the right fintech partner, it is critical, said Chris Powers, that the CU adhere to strict underwriting standards when bringing in business via SimplyCredit.
Chris Powers
“You have to go in with your eyes wide open, and pay close attention to your lending standards,” said Chris Powers. “If you don’t, you could load up with bad risks and face trouble down the road. Credit card refinances are risky.”
The program at Hudson River Financial focuses on super prime FICO borrowers and employs conservative debt-to-income cutoffs and standards for delinquency.
“The resulting risk to the credit union is quite low and members are getting rates commensurate with their excellent credit, which isn’t always the case with cards,” said Chris Powers. “One of the reasons we’re comfortable with the risk is because we control underwriting.”
As credit unions look for new ways to keep the loan portfolio growing, credit card refis are a huge opportunity, said Tom Powers.
“There is certainly a large and growing pool of balances to sweep,” he said. “The Federal Reserve estimates the nation’s card debt at $938 billion and balances are growing faster today than at any time since the Great Recession.”