Since the economic near-collapse of 2007-2008 that triggered a bloodbath of lost jobs, foreclosures and business failures, credit unions have increasingly entered the field of financial counseling to help members better manage their money — and help stave off delinquencies and charge-offs in the process.
Mark Lynch, a consultant with the National Credit Union Foundation's (NCUF) REAL Solutions Program and Entertrainment Works, who has trained hundreds of credit union employees to become certified financial counselors, told Credit Union Journal that despite an improving economy and unemployment rates edging downward, the need for financial counseling services has never been more urgent given the stagnant state of wages and ever-spiraling consumer debt.
According to the U.S. Federal Reserve, as of October 2014, American consumers owed $882.6 billion in credit card debt; $8.14 trillion in mortgages and $1.13 trillion in student loans. In addition, almost one-fifth (19%) of Americans in 2012 reported spending more than they earned (source: Financial Industry Regulatory Authority); in mid-2013, two-thirds (67%) of all Americans were living paycheck-to paycheck (American Payroll Association); more than one-half (56%) of people at the end of 2012 did not have funds on hand to cover unanticipated emergencies (FINRA); one-half of the U.S. workforce earns $25,000 or less (Social Security Statistics); and 26% of Americans have a medical debt that is overdue (FINRA).
The magnitude of the financial crisis and resulting recession spurred not only chastened consumers to more closely watch their budgets, but also compelled credit unions to help their membership do just that.
"Credit unions are recognizing that members are [still] facing financial challenges," Lynch said. "Some saw their members [resort to] using payday lenders and title lenders; while some saw the impact of medical debt [incurred by their membership]."
Of course, many credit unions have long offered their customers wealth management counseling services, investment planning and retirement planning, as well as education on these topics, Lynch noted, largely via outsourcing such sophisticated endeavors to debt management/counseling firms such as BALANCE and GreenPath.
As Jack Antonini, president & CEO of The National Association of Credit Union Service Organizations (NACUSO), pointed out, wealth management-type financial counseling at credit unions is generally outsourced and connected to the sale of investment or insurance products.
For example, Shawn Gilfedder, President/CEO of the $351-million East Windsor, N.J.-based McGraw-Hill FCU, said he has made helping members achieve financial wellness the core mission of the credit union. McGraw-Hill FCU also offers "BALANCE Financial Fitness" as additional support for its members.
Gilfedder told Credit Union Journal that since the financial crises of 2007-2008, consumers of all stripes, including credit union members, have become more fiscally responsible and have a strong desire for financial guidance. "They're not necessarily seeking to accumulate wealth, rather they want to restructure debt, manage their credit, and prepare for retirement," he said.
Kathryn J. Davis, president & CEO of BALANCE, told Credit Union Journal she estimates about 60% of credit unions offer some type of financial counseling, with the majority of that being outsourced to partners like BALANCE. "Of those that offer the counseling, I would estimate that a very small percentage do it in-house with certifications and no support from a recognized financial counseling agency," she added. "For those that run in-house programs I suspect it's very limited in scope since they are not dedicating themselves full-time to being certified financial counselors."
What is relatively new for credit unions is the establishment of "remedial" and "preventative" counseling and education for members — and it is this arena that Lynch focuses on in his REAL Solutions training regimen.
"Remedial counseling is where credit unions help people who have severe financial problems," Lynch explained. "Typically, these members are spending more than they are earning, have no savings and have excessive debt."
Preventative counseling is designed for credit union members who are living paycheck-to-paycheck, have little or no savings and are maxed out on their lending, Lynch added.
In some cases, Lynch said, credit unions discern their members want to better manage their finances; in other cases, members come to the credit union asking for specific help with their budgets.
While such services are usually offered for free and aren't a direct source of revenue, successful implementation of counseling program reaps benefits down the road, Lynch said, such as reduced delinquency and charge-off rates.
For example, Franklin Mint Federal Credit Union, an $873-million institution based in Broomall, Pa., outside Philadelphia, has provided in-house financial counseling services, including financial literacy programs, to its members for more than 15 years.
"As community-owned financial institutions, credit unions have always had counseling and education at the core of their mission," said John T. Powers, vice president and chief retail officer at Franklin. "The unspoken credit union philosophy is that educated consumers strengthen membership and our institution as a whole."
As an anecdotal example of the efficacy of in-house financial counseling, Lynch estimated that of the members who have voluntarily sought counseling at credit unions where he has partnered with, about 85% have contemplated bankruptcy. But after speaking to counselors, only about 5% actually file for bankruptcy — suggesting they have received the proper education about the harsh realities of bankruptcy and instead chose to restructure their behavior and spending patterns.
Colleen Mott, partner relations supervisor at GreenPath, said her company has relationships with about 350 credit unions across the country of all asset sizes. "Many of our credit union clients have both in-house counseling people and also outsource such needs to us." For example, she said, a credit union may not have anyone who is qualified to discuss pre-purchase home counseling to a member — something GreenPath can ably furnish.
Also, as a non-profit, GreenPath provides its counseling services for free — though, of course, there are costs connected with such activities (not borne by the members). "Our funding comes from a variety of sources, including sometimes the credit unions themselves," she said.
So, should a credit union maintain their own financial counseling division, or should they outsource the job to other firms?
There are pros and cons to each option. One issue has to do with how members want to discuss very private and troubling personal information.
Lynch notes that companies like BALANCE and GreenPath predominantly provide telephone counseling services, rather than face-to-face sessions. "Many credit unions have found that members don't feel comfortable with telephone counseling," he said. "They would rather do it face-to-face." Some credit unions have introduced their own face-to-face counseling services while retaining a relationship with a company such as BALANCE for members who prefer telephone counseling, Lynch added.
Indeed, since BALANCE and GreenPath are based in California and Michigan, respectively, most of their clients are located far from their home offices, rendering face-to-face sessions impossible.
But Mott of Greenpath counters that her firm has call centers and branch offices in 15 states across the nation. "Clients can come to us by phone or in person," she said.
One may also wonder why a credit union, many of which are small operations that are understaffed and overworked, would even want to get into the financial counseling business?
"I do not think it's a realistic expectation that credit unions would do the level and quality of work that a certified financial counseling agency would do," David said. "I also do not see how they could afford to set up this infrastructure."
As a solution to this dilemma, Lynch notes that some credit unions are training their entrenched lending and collections staff and building the counseling into their existing roles. "Some credit unions also have staff that are allocated a certain number of hours a week to counseling," he added. "A small number of credit unions have full-time counselors."
Lynch has spearheaded the REAL Solutions counseling training program as a response to a need in the industry. "There were a few reasons why we started the program," he said. "Firstly, we were seeing these statistics that showed the huge need for credit unions to help members. Secondly, we saw that those staff that were being trained as counselors were struggling to work out how to use their new skills to help members. We also saw credit union staff start the self-study program and not make it through to the end."
In 2010, the National Credit Union Foundation gave the Michigan Credit Union League a grant to run a pilot program for credit unions in Lynch's home state of Michigan. "I worked closely with the league to run the program," Lynch stated. "In 2011, the REAL Solutions program was offered to other leagues."
To date, Lynch said he has trained 1,380 credit union staff in 390 credit unions in 25 states.
Lynch said he has had CEOs, branch managers, board members, lending and collection employees, tellers, and marketing VPs take his classes to become counselors.
One such credit union executive who also offers counseling services (and received training from Lynch) is Gary Allen, branch manager of $101 million Statewide Federal Credit Union, in Starkville, Miss.
"I got my [counseling] certificate four years ago and last year I logged about 300 hours of financial counseling work," Allen said. "We have been successful with it. Some of our members who seek counseling are facing bankruptcy, but usually it's more likely that a member just wants to improve their credit scores so they can buy a house, while others are concerned about incurring student loan debt."
Allen also said that he can recall only two members who had such severe financial woes that he could not help them (he recommended they speak to lawyers).
Allen noted that the counseling program at Statewide has been so successful that he's had other credit unions call him to ask how they can establish their own version.
"The benefits of counseling are great, since we have as an ulterior motive, more members with improved credit scores, cleaned up credit and healthier finances, which improves our bottom line," he added.
Davis of BALANCE cautioned that while she thinks the trend of credit unions wanting to offer both preventative and 'triage' services around financial wellness will continue to increase, she does not believe it will increase the number of credit unions that will necessarily try to offer the service on their own.
She further warns that there are a "ton" of risks with credit unions engaging directly in financial counseling. "It's a highly regulated industry and requires constant education to maintain financial counselor certifications," she said. "It also requires being an accredited organization. For example, we are certified by both the NFCC (National Foundation for Credit Counseling) and COA (Council on Accreditation). COA is the leader in third-party independent accreditation of social service programs, like financial counseling. They have eight specific areas we are required to be in compliance with and have to re-certify every four years."