Credit Unions

Navigating the repercussions of inflation with fairer lending

Denise Wymore
October 12, 2023

As the economic landscape navigates rising interest rates, inflation, and the possibility of a recession, the spotlight is once again shining on financial institutions and their role in consumer lending. While both banks and credit unions play essential roles in the financial ecosystem, credit unions have a unique advantage in providing consumers with better lending options during challenging economic times. 

The share of America’s banks that said they’re making it harder for consumers and companies to get a loan is still growing, according to a survey conducted by the Federal Reserve. Fed Chair Jerome Powell said in a July news conference, “The banks cited the economy is facing headwinds from tighter credit conditions for households and businesses, which are likely to weigh on economic activity, hiring and inflation.”

During a period of inflation, credit unions have the flexibility to offer more favorable lending terms and lower interest rates to their members, as their primary focus is on serving their community rather than maximizing profits.

Roughly one-third of the American population currently relies on their local credit union to achieve their financial goals. From 2007 to 2010 credit unions increased their lending to members when they needed it most by making loans banks refused to. 

Back to the future

Speaking of the 2008 recession, Zest AI built a time machine (model) with a data science team and using machine learning and AI found more low-risk borrowers who should have received loans and also flagged more high-risk loan decisions than traditional scoring methods would have approved. Across that time period, the model maintained a 34 percent average lift in accuracy — and the accuracy gap widened during the highest delinquency period. It's important that whatever model you use, it can maintain proven, consistent accuracy across all market conditions. 

The sad truth is, that as of June of this year, 61 percent of Americans are living paycheck-to-paycheck. The big bright spot is, that by leveraging their unique strengths and community-oriented approach, credit unions have the potential to help reduce wealth inequality and create a more equitable financial landscape.  

During any tough economic period for average Americans, when many individuals turn to loans for financial relief, credit unions can provide loans with reasonable terms and lower interest rates. This approach prevents borrowers from falling into predatory lending traps and accumulating insurmountable debt.

New tools for the lending toolbox

Innovation and evolution are necessary steps to future-proofing your lending business, especially for smaller credit unions. Having an AI loan decisioning tool in your pocket will help you navigate through all kinds of economic storms.  The good news is that not only is it possible for small credit unions to adopt smart, inclusive, efficient  AI credit underwriting, but it is well worth the effort. Using an AI tool to auto-decision also means you can free up loan officers’ time to work with members who have difficult credit situations

Members falling within the middle tier of credit scores (680-719) often find it challenging to secure loans, as it can sometimes feel like a gamble. In times of economic uncertainty, this middle tier tends to expand, making it even more crucial to address their financial needs effectively. AI-powered loan decisioning significantly improves the credit union's ability to allocate resources for more personalized and empathetic member interactions. This, in turn, facilitates more compassionate lending practices, particularly benefiting members who need it most.

With market conditions continuing to change and evolve, credit unions are going to need ongoing, accurate insights to inform their lending strategies and help them proactively take measures to firm up their lending business. This means finding the right tools and insights that will continue to be fair and accurate after the loan has been approved. Being able to view risk migration and take proactive steps to help members struggling due to change, or adjust your strategy on decisioning are key. 

This is not our first rodeo

Credit unions have proven their resilience through the trials of the past two decades, enduring the challenges posed by events like the 9/11 attacks, the Great Recession, and the ongoing global pandemic. With the right strategic partnerships, enhanced tools and resources, and a steadfast commitment to upholding the credit union philosophy of "people helping people," there is no doubt that credit unions can weather the current storm and emerge stronger on the other side.

By looking at how to make lending processes more efficient and smarter, riding the waves of uncertainty becomes easier – and more credit unions can continue to better serve their members when other places can’t or won’t. 


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Denise Wymore is an inductee to America’s Credit Union Museum and a cheerleader for passion and commitment. Currently, she is the Marketing Manager for Small Credit Union Initiatives at Zest AI and is proud to be a credit union lifer who started her career as a teller. 

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