By John Flynn, Open Lending President & CEO
The NCUA has released its 2020 Supervisory priorities in a letter to Federally Insured Credit Unions. The letter lists the agency’s top priorities as:
Bank Secrecy Act and anti-money-laundering compliance;
Consumer financial protection;
Credit risk and liquidity risk;
Continue monitoring the implementation of the new standard for current expected credit losses, or CECL; and
Planning for the transition from the London Interbank Offered Rate, or LIBOR, as the benchmark for setting interest rates.
Additionally, the new NCUA member portal and examination processes are outlined. But, as we read through the letter, and given current market conditions, I thought we’d take a second to touch on credit risk mitigation as it relates to CECL. This is core to lenders’ safe and sound business practices, as well as regulatory compliance. Building the right solutions to protect your institution in case of loan defaults or market turndowns is necessary to not only meet regulatory compliance standards, but also to continue serving your members.
Credit unions and banks can do more to stave off the impact of CECL, while also earning more on auto loans and decreasing default risk. First, alternative data, like we use here at Open Lending, helps lenders get a more comprehensive view of their auto loan applicants before making a credit decision. In addition, default insurance helps credit unions feel even more confident in their decisions, while also lessening the impact on reserves due to CECL. It also allows credit unions to make more loans to those in need, particularly as FICO is changing its credit score modeling this year, and it’s expected to negatively impact the already credit-challenged borrowers the most. We’ll have more on that for you later this spring. Plus, loans to these borrowers helps build loyalty, trust and greater income to the credit union while saving the members money that’s better spent elsewhere.
Visit us during CUNA’s GAC at booth #724!
Many credit unions leverage several options to protect themselves from credit risk across their loan portfolios, including diversification of loan types, diversification of borrowers from prime down to nonprime, and even self-insurance. In your auto loan portfolio, where products tend to be higher dollar, shorter term loans, do you have the assets to insure against default? If you’re working with Open Lending, we offer Lenders Protection Program and tailor it to meet the needs of your financial institution and member base.
Lenders Protection is not only Fair Lending Compliant, it offers powerful features, leveraging alternative data and analysis beyond standard credit reports. These advanced analytics give you a better view of your applicants, as well as the performance across your portfolio. Additionally, we integrate our solution into your existing loan flows in a matter of weeks, meaning less staff training and more auto loan growth. And our default insurance, backed by two highly rated insurance carriers, is turnkey, so you can manage risk while helping members in need with response rates in just seconds. Your members will never know the difference except that they got a loan when they needed it most from your institution. I invite you to research Open Lending, and see what our clients say about how we help them manage risk, improve profitability and say ‘yes’ to more loans – from the likes of $25 billion PenFed to $264 million Firelands FCU. Check out our client testimonials here.