Younger members could save your loan portfolio as loan demand withers during the next decade

The number of credit union members in their peak borrowing years is declining as baby boomers move toward retirement. "The prosperity of the 1990s blunted the effect of this decline, but the continuing decline of members in their prime borrowing years could cost credit unions an estimated $23 billion to $35 billion in loans during this decade," says Jon Haller, director of CUNA & Affiliates' market research and information department.

Since 1993, the percentage of credit union members aged 25 to 44 declined from 49% to 45%. Credit unions barely felt this because of a booming economy, high consumer confidence, and rising stock prices. But all that has changed. The recent terrorist attacks sent shock waves through an already fragile economy. Consumer confidence remains tentative. Fears of a deeper-than-expected recession are increasing. Credit unions are competing harder for the average member loan of $1,986.

A net annual decline of 220,000 members aged 25 to 44 means an annual loss of $425 million in credit union loans. Members in their prime borrowing years, however, have average loans closer to $3,000, which puts the potential total loss at about $35 billion.

How will that affect your credit union? If your credit union has 40,000 adult members, 18,000 of whom are between the ages of 25 and 44, you could lose up to 126 peak borrowers per year, or 1,260 during the next 10 years. Loan volume could shrink $21 million, given a $3,000 average loan figure.

To offset this, consider strategies that focus on increasing member growth and penetration, lending patterns, increasing the number of unsecured loans, and making better use of lending technology.


One strategy is to increase the number of credit union members aged 25 to 44 in the short term and members aged 18 to 24 in the long term. It's also advisable to increase loan penetration among existing members and promote online services.

Credit unions are capturing only 20% of potential members aged 25 to 44 from their existing fields of membership (FOM), according to Haller. To increase this percentage, actively pursue the family members of your existing membership. Do you have a program to reward members who refer their adult children to you? Do your current members understand the credit union difference?

Another strategy is to expand your FOM to include more businesses with high percentages of 25- to 44-year-olds, such as computer hardware and software companies, Internet companies, retail stores, and local service providers that tend to hire college graduates.

Make sure you offer people in this age group incentives to join your credit union. Add convenience services, such as online banking, and make sure you research and customize new products while competitively pricing traditional ones.

"Members aged 35 to 44 are looking for quick loan approval and high credit limits," says Haller. With growing incomes, this group has plenty of disposable funds to shop and invest.

It's also important to attract more 18- to 24-year-old members because they're in the process of deciding on their primary financial institutions (PFIs). This group is least likely to know anything about what makes credit unions unique.

Education about credit unions can begin with the parents and students when they apply for college loans. Be sure to ask where they're going to college so you can offer names of credit unions that will be convenient for them. A credit union locator is on CUNA's Web site. Go to and click on "Consumer Information."

If your credit union is near a university, don't be afraid to aggressively market during orientation week. In July of each year, Schools Financial Credit Union, Sacramento, Calif., has its business development representatives negotiate with officials at seven local community colleges for places to set up sales tables during college registration, says Stephanie Dennis, Schools Financial's marketing specialist. The credit union looks for high-traffic areas, such as campus centers or book stores.

Credit union representatives at these tables tell students the credit union has an automated teller machine (ATM) on campus and encourage each of them to sign up for a package of useful products. The package includes checking with overdraft protection, a savings account, a student Visa card, and an ATM/check debit card. As an added incentive, students receive T-shirts when they sign up, says Dennis. They also get a certificate for $5 that can be redeemed when they successfully refer another student to the credit union.

The strategy appears to be working. The credit union brought in 841 members and 1,985 new accounts for the year. These results earned the credit union a 2001 CUNA Marketing Council Diamond Award for business or community select employee group development.

The month before graduation is also critical, according to Haller. Let students know they can maintain a relationship with you through their credit cards no matter where life takes them.

It's important for members of this age group to get their first credit card from a credit union. "Give each of them a credit limit they can manage and live with," says Haller. "And make sure you stay on top of their lifestyle." That means adjusting their credit limit as payment history changes, rewarding good credit history, and anticipating higher limits as they graduate, get jobs, and get married.


Credit unions must figure out why so many of their members-even members who say their credit unions are their PFIs-are going elsewhere for loans.

Credit cards are a good example. Only 30% of members and 41% of PFI members have credit union credit cards. And credit unions have only 10% of their members' and 13% of their PFI members' credit card debt. Haller recommends credit unions review their underwriting guidelines, interest rates, and credit limits.

One middle-class credit union member summed it up this way: "I received a credit card offer in the mail last week for a Platinum card with a $250,000 credit limit and a 12% annual percentage rate [APR]. After being a PFI member of my credit union for 20 years, I've worked my way up to a $10,000 credit limit, and the APR is comparable."

Some credit unions need to consistently raise limits once members establish good credit histories. "Historically, credit unions would raise limits only when members asked for higher limits," says Mike Schenk, CUNA's vice president of economics and statistics. "Banks tend to automatically raise limits without being asked."

But doesn't that raise delinquency concerns? To compete successfully with other financial institutions, Schenk suggests that the current credit union delinquency rate of 0.8% could probably be relaxed to 1% or 1.2% without adversely affecting a credit union's bottom line. "Many credit unions will find this desirable," he says. "Even at 1% or 1.2% delinquency, you're still in good shape. You're making a lot more loans, and you're making them to the members who really need them."

And there are a lot of members who need them. Debt-consolidation loans, mortgage refinancings, second mortgages, and home equity lines of credit are examples of loan products that help members manage their debt. And U.S. consumers have record amounts of it. U.S. households' average credit card debt is $8,100-almost triple what it was 10 years ago. Consumers are using up to 20% of their income to pay off their debt.

In addition to relaxing underwriting guidelines for all income brackets, there are other services credit unions can offer low-income households. Strategies include microenterprise and small-business loans, making loans for as little as $200 to establish or re-establish good credit ratings, and exploring risk-based lending to provide alternatives to payday lenders and other fringe bankers.

At the other end of the age and income bracket, credit unions can do plenty to attract and reward seniors and highincome members. This group expects instant loan decisions, high credit limits, low loan rates, and high savings rates. Use marketing customer information files (MCIFs), segmentation analysis, and member surveys to assess their needs and wants.


You might have seen the Capital One national television ad campaign that shows hordes of Mongols, Roman warriors, and cowboys (representing high credit card debt) attacking the "man of the house" only to be saved by his female partner brandishing a Capital One credit card (symbolizing freedom from high credit card debt).

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