****As Seen in Credit Union Business Magazine in March 2018****
With a strong, growing global economy and inflation concerns, new Fed Chair Jerome Powell will likely sustain the same increasing interest rate policy over the next year. This is great for the economy but bad for all those loan officers out there who are trying to recapture loans.
Or is it?
Fed rate hikes began a couple years ago and there is still plenty of room for them to go up. Because of this, the most consistent questions I am answering right now in strategy sessions are 1. Is loan recapture dead? and 2. How do we recapture loans when our new loan rate is higher; sometimes much higher than the competition? Let’s answer these questions.
First question: Is loan recapture dead?
In 2008, I was a seasoned loan recapture expert in our credit union’s outbound call center. The economy was tanking, and interest rates were trying to keep up. The downward pressure of the prime interest rate finally made its impact and on auto and RV loans, and mortgages. Suddenly, every loan on the credit report was prime for recapture and the refinance boom started.
In March of that year, I recaptured over a million dollars in auto loans alone. I could barely keep up, as every call I made ended in a loan application and members hoping to close that day. I finally had to stop calling so I could catch up on a little processing.
Today we are competing on slim margins, if any margin at all. It’s a difficult sell to recapture an auto loan financed with a competitor at 2.74% when your new base rate has increased to 3.74% or higher, but don’t throw your arms in the air and walk away from recapture just yet.
In an increasing rate market, yes, the fixed rate options are probably going to be few and far between. In any market there is opportunity to be had when you know where to look for it and you are positioned to capture it. In this increasing rate market, the opportunity lies in the variable rate loans.
Your member with a credit card or HELOC carrying a balance watched as their interest rate increase by a full 1% last year. With rates projected to continue to increase, by the end of 2018 those rates will be somewhere around 2% higher than they were previously. That’s a 10% increase in their rate. Do your credit union members know this? And is it time to help them restructure their debt to avoid these increases?
According to Nerd Wallet’s *Household Debt Study, at the end of 2017 the average US household with credit card debt carries over $15,000 in balances. This equates to about $2,700 per person in America. Ask yourself, how much credit card debt do your members have with other institutions? And what percentage of that opportunity could your credit union recapture with marketing and outbound initiatives?
Credit card debt is only one example of the variable rate recapture opportunities. The other variable rate products out there such as home equity lines, student loans, and business lines are also poised to be recaptured. Those credit unions prepared with fixed rate programs to restructure this debt and even competitive variable rate products will have an offer that not many members will be able to pass up.
In 2008, when the recession hit and rates dropped by 5%, many credit unions were not prepared to take advantage of the significant recapture opportunity. They did not have the strategy in place and their employees were not trained and didn’t have the tools to succeed. As a result, these credit unions missed a key lending channel which would have provided loan growth during the lean years that followed.
No, loan recapture is not dead. In fact, it is quite the opposite. While the opportunity today may not be as prolific, we are in the middle of a recapture market your credit union can’t afford to miss out on.
Second question: How do we recapture loans when our rate is so much higher?
You can recapture loans even when your rate is higher based on convenience and member loyalty. Additionally, an approach which offers a customized term to help the members get to an ideal monthly payment can also be an effective approach. These approaches will require your employees to have a very strong value proposition and communicate clearly the advantages of bringing over their loan even with a rate increase. However, if that rate is going to increase more than .25% this may still be a difficult sale.
The key in our current market is to stop trying to force old opportunities to work in a new reality. The key is to retool the recapture engine to focus on the new opportunity available.
To gear up for the opportunity, I suggest—from a sales perspective—a few things.
1: Provide your team with a powerful recapture tool
Few things compel a member to refinance their loans with you better than seeing the numbers. If your credit union doesn’t have a Loan Recapture Calculator which shows the four benefits of refinancing then you’re already at a disadvantage. Not to worry; I have created just the calculator you need. You can access it by clicking here. This calculator works best in Chrome and Firefox and you will find the credit card calculator in the dropdown. Enjoy.
2: Create a compelling product
Your sales and marketing teams will need products that they can promote to recapture the different variable rate loans. For example, to recapture credit card debt, this could be as simple as offering an extended term signature loan. For the HELOC opportunity this could also be as simple as an enticing second position home equity option. Regardless of the solution, it needs to make sense to the member and be simple for employees to sell.
3: Create a marketing strategy
Start by identifying the data and information that will target those members with recapturable loans. Your credit union will see a much higher marketing ROI when specifically targeting those members who have a need. The data is there for your marketing team and they can use this information to drive members who have recapturable loans into the branch and online.
4: Deliver training to your employees
Credit unions invest significant time and resources into operational training to ensure their employees are able to navigate products, processes, and systems. Don’t get me wrong, this training is important, but equally important and often overlooked is sales training and coaching. Key sales training your employees need to succeed with this specific initiative would include lending product sales training, loan recapture sales training, and outbound/phone sales training. You can attempt to provide this training internally or you can hire an expert to teach them how it’s done.
5: Be in compliance
Most credit unions likely understand the marketing and lending compliance involved in the CAN-SPAM Act and the FCRA. They have generally taken steps to be in compliance, updating membership agreements, sig cards, and so forth. And to capture the opportunity with this initiative and others in the future, your credit union needs to reach out through calling initiatives. This will require a review of your TCPA and TSR procedures to ensure you are in compliance. If not, now is the best time to take action to align with the new stipulations.
As Heraclitus so famously said, “Change is the only constant in life.” It was true in 500 BC and it is true today. It’s been a long time since we’ve had to deal with rate increases. From a sales perspective we have had it pretty good, but while we say goodbye to low interest rates for a while, we say hello to the potential that can be created in this new market. Those that first see the opportunities that change brings and align with the future new norm will have the best chance at capturing it.