Credit Unions Could Put Payday Lenders Out of Business Tomorrow

8 minutes with Keith Dunlap, Managing Director, AdvantEdge Analytics

What follows is part of our series “8 Minutes with AdvantEdge Analytics,” a collection of eight-minute (or less) reads featuring brief interviews with our top thinkers on trending topics in the credit union space.

Why did you choose this topic?

After nearly two decades working with and for credit unions, I’ve formulated a strong opinion about a necessary shift in the cultural mindset of the nation’s financial cooperatives. Most are just way too conservative.

Although the great majority err on the side of caution, that mentality has to change if the movement is going to improve financial lives like it’s supposed to.

How does this topic hit close to home for you?

I live in a city not unlike many others. We depend heavily on the strength of certain industries. They make a call – right or wrong – and the whole town, maybe even the whole region, is affected overnight.

Even the most fiscally strong credit union is not insulated from that kind of risk. In fact, one could argue that the most fiscally strong are at the greatest risk of losing business because they haven’t proven themselves irreplaceable to members who really need them badly. Plenty of providers are waiting in the wings to become the stronger alternative to a member’s too-cautious credit union.

Tell me more. What keeps you up at night?

Credit unions are uniquely positioned to provide dignified, affordable and inclusive financial services. Yet, too many substitute risk avoidance for risk management. While this may be driven by expectations from the board and senior leadership, it’s an outdated model that essentially closes the door to creditworthy neighbors in need – the opposite of what credit unions were built to do.

We’re heading into strategic planning season, and I’m afraid too many credit unions will take the path of least resistance, continuing on just as they have for years. But, here’s the deal. The world has changed. Credit unions had better change along with it or their competitors will chew up and spit out their members, all in the name of profit. If you listen hard enough, you can hear aggressive Big Techs and Big Banks salivating at the prospect of stealing member business away from conservative credit unions.

What's happening right now that makes this topic important?

As the country confronts the pains of job losses, racial injustice, natural disasters and an untold number of individual challenges, there’s never been a greater need for equitable, human-centered financial services. Now is the time for some real talk about whether credit unions are fully living up to the promises they’ve made their communities.

When a credit union determines it can do more (and most will), there’s an easy place to start making changes, and that’s in the rollout of short-term and small-dollar loan products. The kind many consumers get from predatory lenders. The kind that keeps too many Americans from earning wealth. And the kind credit unions could offer under a much different, much friendlier, model.

As with every tough decision before credit union leaders today, data can inject confidence into what could be an otherwise intimidating process. With the help of even rudimentary data analytics and predictive modeling, progressive credit union leaders can gather enough evidence to convince skeptical colleagues and board members that a change is necessary. Financial performance forecasting and predictive insights on member behavior make it much easier to get controversial projects off the ground. AdvantEdge Analytics is helping several credit unions get to these actionable insights right now.

How is this going to look a year down the road? What about 5 years?

My hope is that a year from now, the definition of creditworthy will look a lot different across the industry than it does today. COVID-19 and the micro- and macro-economic crises it started have resuscitated the credit union purpose for a lot of leaders in the movement. We are already seeing bright spots that will only shine brighter over the next 12 months as credit union innovators get aggressive internally, really pushing hard to remind their colleagues why credit unions were built in the first place.

If credit unions got serious about offering more accessible, more relevant loan products, they could put payday lenders out of business tomorrow. And definitely within five years. I’d love to see credit unions dominate the small-dollar, short-term lending marketplace by 2025. Imagine the difference such domination could make to the millions of American families who have gotten caught up in the never-ending predatory lending cycle! It’s 100-percent doable, and I hope more credit unions get fired up about the possibilities.

Keith Dunlap

Keith Dunlap, Managing Director, AdvantEdge Analytics