Money to Lend...but we'd really like to have some of it back

by Ron Daly

Got my "change in terms" notice this week from Chase raising their credit card default rate. Miss a payment on their card and the rate jumps to 29.99%... period. I'm an ex-CFO so I get it. Financial institutions need to charge higher rates for  higher risks and by missing a payment you just jumped right into a high risk category. And there are going to be more people missing payments ahead.

In a recent post on CNBC "Mounting Layoffs: Why they're different this time" (click here) suggests that there are 27 states in recession. Fifteen states are close. Goes on to report that 3/4 of a million jobs have been lost since the beginning of the year, and expects unemployment to peak at 8 percent by the end of 2009 or early 2010.

In a recent CU Journal article "How CUs are Responding to the Financial Crisis" (page 1 10/20/08 edition and online here), the CUJ profiles CU responses to what some have called the greatest financial crisis since the Great Depression, ranging from blogs answering member questions to hiring financial counselors to media campaigns and more. 

So brace yourself, the credit union philosophy of "people helping people" is going to be tested in the next few quarters. We are starting to see signs and advertising everywhere from credit unions about how "there's no credit crunch here" and that "we've got money to lend". 

Some Examples:

• Community Banks, Credit Unions Still Lending Money (from OrlandoSentinel.com)
• Let It Be Known...We've Got Money to Loan! (from Saginaw Medical FCU)
• We've got money to loan (from Triangle FCU) 

Sure we've got money to lend...but don't we want it back plus interest? The folks let with jobs and 700+ credit scores are not the ones that need help or money. It's the factory worker that was just laid off in Ohioo, or the mortgage professional in Detroit or the financial professional in New York City that no longer has a company to work for. 

How do we help them? There is plenty of risk in these loans and we might not get our money back let alone interest. How do you look members in the eye and tell if they are the honest folks that need help and will pay you back come hell or high water? Or tell if they are just piling on all the free money they can get their hands on the way to bankruptcy court? 

We all want to help our members. What are some examples of what credit unions are doing (or considering) to lend money to the high risk borrowers? The small bsuiness or the faily one or both parents lost their jobs? 

Who wants to share?