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What’s Rates Got to Do with It?

The Federal Reserve did something that it hasn’t done in over 10 years – it lowered interest rates. Since the Fed typically signals its intent in advance of its action, the stock market had factored in a rate decrease but was disappointed when the Fed signaled that this is a mid-cycle correction, not the first of several rate decreases. The market likes lowering interest rates. You know who else likes lower interest rates – anyone with a credit card or who wants to buy a home or auto.

This rate drop is also an excellent opportunity for credit unions to leverage the data they have on their members to help improve their lives. Here are three considerations for credit unions to take advantage of their data analytics in a declining interest rate environment for deeper member engagement.

1) Credit cards

Chances are, your credit card-holding members have not had their rates reset since initial issuance. But credit card rates were set based on specific circumstances, such as current prime rate and current credit score, two items which change over time. Leveraging the credit card data (from the provider or your data management tool), you can analyze your cardholders for rate potential increase/decrease due to change in credit score. Also, use your CU’s underwriting criteria to automate credit term adjustments; generate member communication; and coordinate change with the processor. This is also a great time to review member spend trends, the rate change plus spend behavior may lead to other insights about the member and their needs possibly generating other ways to deepen the member relationship.

2) Auto Loans

Here is where data analytics really shines. Correlating credit bureau data, including credit score and open trade lines, with underwriting criteria, the credit union can search for members who have auto loans with other financial institutions, and customize offers, based on underwriting thresholds to incent those members to refinance. This type of data search will take some setting up and requires working closely with compliance staff, but can be rewarding. What about those members who already have an auto loan with you? Those members may already be out looking for a better deal. Preempt them by offering to reset their loan terms, taking advantage of lower interest rates as well as longer terms to reduce their monthly payment. This will bring more value to the member and in turn the credit union.

3) Mortgage Refi

A recent Credit Union Journal article showed that while mortgage applications were up 5.6%, mortgage refinance applications are up 116%. Here’s where a credit union’s use of member data along with third-party data showing current market housing values can result in happy members. Imagine getting a personalized note from your credit union stating something like:

Although you bought your house for $175,000 in 2015, it looks like your house is now worth $190,000. Given your great credit history, we’d like to offer you a lower interest mortgage rate, with the ability to pull some of your hard-earned equity out of your house for you to use on what’s important to you - paying down student loans, remodeling, or buying a new car.

Your members expect their credit union to act in their best interest. Use your data to make that happen.

4) Loan products in general

Statistically, as rates go down, charge-offs decrease. There are a couple of factors driving this correlation: lower unemployment means more people can make on-time payments; lower interest rates on variable-rate revolving credit balances and variable-rate HELOCs make paying down debt easier when more of the monthly payment goes toward the principal. Re-evaluating underwriting criteria in this new environment, coupled with evaluating the members’ needs and changing financial condition, can create impactful marketing campaigns to promote revised or new loan products to your existing, and potential new members.

If Federal Reserve Bank of St. Louis President James Bullard is correct in his prediction that the Fed will reduce rates one more time this year, taking the time to build your lower-rate member engagement strategy is critical to success. To do this, you will need to access your data, and if that is a challenge, now is a perfect time to also create your data strategy as well.

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