The three most common causes of bankruptcy are: job loss, medical expenses and divorce. Income verification, credit score and the other factors used to underwrite a loan are not good predictors of when a company will have layoffs, a person will have a major medical event or when a marriage will fail.
When a member defaults on a loan, today, the credit union will repossess the car, take the collateral and attempt to mitigate the loan loss. But there might be a better way for both the member and the credit union.
Some will think this is a crazy idea, but, what if when a member loses their job the credit union helps them find another job. What if the credit union offers financial counseling to members going through a divorce or when incurring major medical expenses. The alternative might be to check someone’s blood pressure and marital happiness before giving an auto loan.
We don’t know if the reduced loan losses would offset the cost of the counseling, but I am certain the credit union reputation would skyrocket in the community.
Author: Chris Doner, Founder and CEO, Access Softek