Credit Unions Bracing For Delinquency Surge

Over the past year, credit unions in the United States have experienced considerable growth, even in the face of macroeconomic challenges. Credit unions are not-for-profit, member-owned financial cooperatives that aim to provide their members with affordable, high-quality financial services. With their focus on people, not profits, and their commitment to community development, according to NCUA, the credit union system’s net worth increased by $21.4 billion, or 10.1 percent, during 2022 to $232.9 billion. The aggregate net worth ratio — net worth as a percentage of assets — stood at 10.74 percent in the fourth quarter of 2022, up from 10.26 percent in 2021.

Total shares and deposits rose by $61.3 billion, or 3.4 percent, over the year to $1.85 trillion in the fourth quarter of 2022.

One reason for the growth of credit unions in the United States is the trust they have built with their members. Credit unions are typically more customer-centric than traditional banks, which makes them more approachable and member-friendly. Credit unions offer personalized services that focus on members’ needs and goals. To effectively do so, they have had to rapidly embrace digital technology, providing easier and more convenient access to their services. This has helped them attract younger customers who value technology and speed in banking transactions, which has contributed to their sustained growth.

Despite the challenges posed by the pandemic and the ensuing inflationary environment, credit unions have remained relatively resilient. While many financial institutions have tightened their lending requirements, credit unions have continued to approve loans to their members without much difficulty. In 2022, total loans outstanding increased $251 billion, or 20.0 percent, over the previous year to $1.51 trillion. The average outstanding loan balance in the fourth quarter of 2022 was $17,141, up $1,022, or 6.3 percent, from one year earlier. The delinquency rate at federally insured credit unions was 61 basis points in the fourth quarter of 2022, up 12 basis points from one year earlier. The net charge-off ratio was 34 basis points, up 8 basis points compared to the fourth quarter of 2021.

According to data from Experian, credit unions and alternative finance companies have increased their market share at the expense of banks and captive auto lenders. In the third quarter of 2022, of all auto loans issued, credit unions’ share increased to 30.7%, up from 22.8% in 2021. For used car loans, credit unions claimed 31.5% of the market share, up from 25.5% in 2021. Since the COVID-19 pandemic, Americans have taken on significantly more debt to buy vehicles. Americans under the age of 40 have grown their vehicle-related debt the most, with the average auto loan up 41% since 2019 at $24,000. Fitch Ratings show the percentage of subprime auto borrowers at least 60 days late on their bills at 5.3%, compared to a seven-year low of 2.6% in May 2021.

Although credit unions have shown strength and resilience, with increasing credit delinquencies, they must implement comprehensive collection and recovery strategies to mitigate risk. Strategic plans will certainly include predictive analytic modeling, digital member engagement, pre and post charge-off collections, repossessions, asset sales and collection litigation. Despite previous reticence to litigate due to reputational risk, credit union leaders are well-positioned to handle the increasing delinquencies by partnering with collection agencies and legal networks who adhere to rigorous compliance certification standards, and a member-centric total experience.

About TRAKAmerica:

Based in Bonita Springs, FL, TRAK is a leading provider of outsourced legal recoveries to credit issuers and financial institutions. The Company utilizes a proprietary technology-enabled workflow management and data-analytics platform to provide a prioritized, streamlined and compliance-driven solution for consumer receivables. TRAK’s national legal network of law firms collects hundreds of millions in charged-off receivables on behalf of blue-chip clients annually. The Company’s legal-focused strategy generates an industry leading return on investment versus all other recovery methods.”

Author: Roxanne Bartley

Chief Revenue Officer

TRAKAmerica

127500 Riverview Center Drive

Suite 200

Bonita Springs FL 34134