Credit unions did not grow up as a sales industry; we grew up as a service industry–so we have a lot of work to do. –Brett Christensen
FORT LAUDERDALE, Fla.–Brett Christensen doesn’t pull any punches: Most CUs have no idea what they’re paying to generate loans; most staff are lousy at it and need to be shown the door, and most of those branches aren’t needed–especially when it comes to lending.
Christensen, who leads Euless, Texas-based CU Lending Advice, and who has worked with Lending Solutions and as VP-Lending with Clark County CU in Nevada, estimates he has been in more than 1,000 credit unions, and when it comes to lending, often what he has seen hasn’t been pretty.
“There are very low sales numbers from many of your lenders. It’s probably the most depressing number that many of you don’t look at,” Christensen told the CUNA Lending Council meeting here. “Just take your funded consumer loans and then divide that by the number of employees that take those applications, and divide that 20 work days in a month, and you will come up with a number of $4,000 or $5,000 a day in applications taken by those employees. That’s a tad depressing. If you don’t think you can do better, I’m going to respectfully disagree.”
The One-Stop-Shopping Mistake
One fault of many credit unions, said Christensen, has been the search for the “perfect employees” who can be plugged in as “one-stop shopping” reps who can work across a number of disciplines.
“Let me give you a news flash: not everyone is good at sales, yet that’s what you’re asking them to do,” said Christensen. “You want them to do debit cards and fraud and service, etc. I challenge you to make a list at everything a one-stop employee is good at, and it’s overwhelming. That whole model is flawed; it doesn’t execute well. It’s called jack-of-all-trades and master of none.”
Those jacks-of-all-trades are costing credit unions loans, said Christensen, because loan apps are going to order-taking employees. “You should be personally offended that you don’t have every members’ car loan. Many of your apps go to people who aren’t motivated, aren’t good at it, and don’t care.”
Christensen is a proponent of centralized lending in which the very best sales people within the credit union are handling the loan application process.
“Decentralized is hard, because as you grow you get so many people involved,” conceded Christensen. “It can mean a third of your employees are new at any one time, a third of them suck at it, and a third are decent at it, and it’s hard to maximize your potential under those conditions.”
Centralized lending, of course, also means getting the branches out of the loan business. “If you haven’t figured out you branches yet, I don’t have much hope for you,” said Christensen. I go into branches all the time and tellers are just staring into space. The first words out of branch manager’s mouth are usually, ‘Hey, Brett, I don’t know what’s going on today. Usually we’re busy.’ ”
Another Personnel Issue
Another personnel issue: Christensen said when he asks CEOs who is responsible for sales success at their CU, two or three VPs are named. “I tell them you need to get that down to one name and have that person own that.”
While the best sales people with the best incentives can be rendered worthless if the underwriting is overly conservative, Christensen said if the underwriting is set to take appropriate risk, then motivating employees is the next step in building loan volume. That can mean a credit union needs to get comfortable with some aggressive pay packages, he said.
“I go and look at your miserable numbers and I say let me see the variable pay plan you have in place for them, and it’s usually minor. They make $35,000 a year if they make two loans a day, and $35,000 a year if they make 10. So why make 10?”
That doesn’t mean getting rid of people—just the wrong people, said Christensen, noting that good service people are still needed—they just shouldn’t be in sales positions.
“How about asking your tellers and MSRs to do something they can handle? That would be referrals. Get them over to your good sales people.”
10 Factors That Drive Success
Christensen said 10 factors determine a credit union’s lending and sales success:
- The ability of your lending staff
- Leadership
- Your tolerance for risk when underwriting
- Sales culture development/organizational design
- Organizational design
- Collections effort
- Policies, procedures and processes
- Pricing
- Marketing
- Technology
He noted that most credit union execs, when asked, would list marketing, pricing and technology near the top, but those are commodities.
“You have to be willing to take the risk. You need hungry sales people,” he said of pay plans that lower the base and add aggressive incentives.
At the CUNA Lending Council meeting he read the names of employees at credit unions with which he has worked that are selling as much as $2 million a month in gap and warranty products. “You have employees who don’t do that in a career,” he said, pointing to one CU in which seven employees had $14 million in loans and additional sales in one month’s time.
The sales record, by the way, that he has seen: 143 gap policies sold in a month by one person; 47 extended warranties sold in one month; and $3.7-million in funded loans by one employee, in this case at University FCU in Austin, Texas.
“I go into $300-million credit unions with 30 employees and they are not doing $3.7 million. If you want some different results you might have to try some different tricks. How good are your employees? You have to set them up to succeed.”
That means paying well, and Christensen pointed to one CU lender who was paid $8,900 in incentives in just one month. “That credit union was happy to pay it,” he added.
'I Hate Branches'
One of those different tricks, Christensen believes, is shuttering branches, even as most credit unions continue to add the bricks and mortar.
“I hate branches,” he said. “Hundreds of Branch of America branches keep disappearing, but you people keep building them like it’s 1982.”
Closing branches means overcoming the objections of strong advocates of branching, which is often the members of the CU’s board.
“For you branch lovers, there are only four things that a member has to do at a branch: Safe deposit boxes—you make a lot of money there. Notary services—there’s an ROA driver. Coin counting, and going to the bathroom.”
Once a credit union recognizes that, said Christensen, it can also come to understand that when it comes to loans, there are four “undeniable” facts:
- There are very thin margins on A-paper loans.
- “You can make serious money on D and E paper loans.”
- Members with bad credit need a car to get to work.
- Members with bad credit can choose to pay their credit union on time.
“Unlike some of you credit unions that run anyone under 700 (FICO) out the door, others have embraced subprime auto loans and found very low delinquencies,” he said. “One thing people continue to prioritize is car loans; people need to get to work. Ninety-nine percent of Americans pay their auto loans on time, so you understand why I’m offended if you don’t have every member’s auto loan.”
Those C, D, and E borrowers are also “very loyal,” observed Christensen.
“Can you say the same about A paper? No, they will be loyal to their wallet.”
But Christensen also stressed caution around indirect subprime loans. “I would look at one direct member, but I would not take non-member indirect under 620.”
How to Significantly Improve Lending
Christensen, who said the issue isn’t that he’s not a fan of indirect lending--he just prefers the much more profitable direct lending, offered these strategies to “significantly improve” direct lending and sales results:
- Hire sales people to work up loans.
- Train them and motivate them with money.
- Remove all the non-sales duties.
- Give sales reps all your applications. “This is where I lose CEOs and the board. You can’t handle the truth. Wouldn’t it make sense to identify a few good sales people and give them all of your applications? You don’t need 18 people taking applications, if 15 are lousy. Three of them can get all of this done. How? You hit these numbers by removing lending from your branches. We have gone into the modern world, and all apps done by phone, Internet or mobile. You turn the face-to-face app into a phone loan. I’ve been telling credit unions to remove lending from the branch for 20 years. Now 60 credit unions I have worked with have done it. The largest is $6 billion, with 60 branches. This move solves every single problem you’ve got. You don’t need 20 or 50 people taking apps, 20 to 50 people who need training. Now every app goes to your best sales people. Now everyone is on aggressive, variable pay plans. Now everyone can work for one VP—you. You own it. Now we get out of this VP of Operations vs. VP of Lending situation. There are no more meetings to see if you need to have to have meetings.”
- Set them up organizationally to succeed
- Make loans to all credit tiers
- Write loan policies that empower.
- Provide a strong market effort
- Provide a strong collections effort.
“You can cut your staffing in half and produce twice the loans. One of the most overstaffed areas at a credit union is lending,” said Christensen.