LAS VEGAS — As CU Direct's annual "Drive" conference gets underway Wednesday in Glitter Gulch, the company is looking to expand awareness of its new Advisory Services.

Michael Cochrum, executive lending advisor, told Credit Union Journal the new component had a soft rollout in January, with a formal introduction in March. He said there are three major components of Advisory Services: optimization review, portfolio analysis and fair lending analysis. Credit unions also receive educational sessions designed to help improve overall lending success.

"We have always played an advisory role with our clients, but for a long time the assumption was made that credit unions would best determine how they utilize technology," Cochrum said. "But over time our research found credit unions were underutilizing not only our products, but all technology."

According to CU Direct's analysis, less than 20% of electronic applications are actually auto-decisioned. Cochrum said that means more than 80% of applications are referred to an underwriter for manual underwriting.

"That is not a good use of resources," he assessed.

Part of the reason, Cochrum explained, is very rarely are credit unions able to go back and "tweak" the original settings after they buy application software. A credit union might want to give manual input, but CU Direct found the factors are basically the same as those applications that are system approved — especially if the settings are accurate.

This is important because a credit union has a 15% greater chance of funding an application if the person gets a decision immediately, rather than having to wait for an answer, Cochrum said.

"If they have to walk away they will search for an answer somewhere else. So even if the credit union later approves the application, the consumers may have found a loan elsewhere," he said. "In our society today, people are looking for immediate decisions. Many credit unions take applications online, but those applications are not attached to an automated decision engine."

That frames the challenge, Cochrum asserted, because credit unions are competing with larger financial institutions that have more automation.

Portfolio Analysis
Cochrum said his role as an advisor is to identify places where credit unions can optimize decisioning so they can increase the number of loans they are able to fund.

"That is one element — optimization. In the indirect world there are other elements that can affect credit unions' ability to gain market share," he said. "I compare a credit union's results with others in their peer groups to determine their efficiency levels."

CU Direct has more than 1,000 clients using the same software and using some of the same strategies, which Cochrum said gives the company an opportunity to show credit unions where they may be missing opportunities.

According to Cochrum, the credit union industry does not have a lot of benchmarking data at the granular level — it mostly is at a higher level. He said CU Direct is able to perform a detailed financial analysis of loan portfolios to help credit unions better use the company's services.

"This came out of our Lending Insights offering, which has portfolio management capabilities," he said.

Fair Lending
Fair lending analysis identifies areas where CUs may be inadvertently creating disparate impacts. Cochrum said this component of Advisory Services was created in response to CFPB initiatives on fair lending.

"NCUA has adopted CFPB rules," he noted. "Our analysis is meant to help credit unions be aware of disparities and answer any regulators' questions. I have had CUs tell me they were surprised by questions because they had not examined their policies. It may be easily explainable, but unless the credit union has done its homework it might not be able to respond to examiners."

As an example of how a disparate impact may be created: a credit union sets a debt-to-income ratio fairly low. That would mean people with lower incomes could not afford the payment on a loan of 60 months. Therefore, their only choice would be to go to 72 or more months.

"That appears to be a disparate impact, but our analysis can show in some cases loans with longer terms do not have higher default rates," Cochrum said.

Another case would be a policy that only accepts loan applications online — which excludes seniors and lower-income consumers who might not be tech savvy or be able to afford Internet access, he added.

"Normally, disparate impact can be unintentional. The credit union might be trying to make things more efficient or lower the cost of taking applications, but the result may exclude certain classes."

Road Warrior
At present Cochrum is the only CU Direct employee delivering Advisory Services, making him a road warrior — but he does not mind.

"Our clients were asking for more help, they wanted more guidance, which drove us to start this business," he said. "It helps credit unions meet unique challenges that our sales staff is not equipped to handle."

Because the Advisory Services offering still is in the early stages, CU Direct does not yet have measurable results, "other than people saying they are happy with their review," Cochrum said.

"As time goes by we will continue to monitor to see if this is paying off."

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