In March 2022, the US inflation rate hit 8.5, the highest level in 40 years. This means that several members have never experienced inflation this high. Adding in the impact of Russia invading Ukraine drove both indirect and direct costs even higher. The two key areas where everyone feels the pinch are gas and groceries. OUCH!
This feels comparable to a plane ride that you knew might be bumpy, but unexpectedly, the plane drops altitude and then levels out. You will take the rough ride, but please no more sudden drops. While the Fed is currently working on landing this economy "softly" (good luck!), credit unions do have one tool they can pull from their superhero tool belt to help take the sting out of the current economic situation.
Meet the Skip-A-Payment loans.
This nifty tool is usually seen around the holidays. It
allows qualifying members to skip one payment on either a credit card or auto loan, freeing up the cash that would have been used for the loan payment to be used for other purposes. While skipping a loan payment extends the life of the loan, the ability to have additional cash available may be a critical way for members to stay afloat. As the cost of gas has nearly doubled from this time last year, financial help is needed.
Recognizing this need and creating solutions for it is a perfect example of how credit unions differentiate themselves from other financial institutions.
There may be an economic benefit from these efforts, specifically in keeping members in their homes and providing methods for increasing cash flow.
If deferring an auto loan payment is considered a form of a micro-loan. Then micro-finance research performed by Harvard Professor Rohini Pande and Duke University Professor Erica Field indicates a positive economic impact when a borrower is given a chance to defer a payment. Professors Pande and Field found that offering borrowers a grace period of just two months doubled the rate the new businesses were created. The cash flow generated by the deferred payment allowed the borrower to take more significant risks that then resulted in bigger rewards. After three years, business profits were 41% higher, and household incomes increased by 19.5%.
Does this mean that credit union members who skip an auto loan payment will have a similar economic impact? The research has yet to be completed; however, an argument can be made that by allowing the member to have the freedom to have additional cash has two positive impacts on local economies. The first is it keeps the member from defaulting on other loan obligations and keeps them in a positive cash flow state. The second is it makes the member more loyal to the credit union and increases the likelihood that members will not default on the auto loan in the future. And most importantly, credit unions are, for the most part, the only financial institution that offers this important and needed financial hug.
Where can I fill my data knowledge gaps?
With a stop at the
Data Education Center.
We believe that data transformation doesn't have to feel overwhelming or expensive to be impactful. After helping over 600 credit union leaders launch their data journeys, we have identified several consistent knowledge gaps. We have worked hard to fill these gaps with a variety of educational artifacts:
Looking for more insights on data and how you can leverage it to transform your members' lives?
Check out Big Data/Big Climb. Written for credit unions by a credit union expert, this book has been hailed as a "must-have". The book cuts through techno-jargon and translates data transformation concepts into a playbook filled with real-world examples, assessment guides, and other tools needed to reduce member friction, analyze actual competition, and identify disruption to improve the lives of its members and gain competitive advantage.