The State Employees’ Credit Union of North Carolina will start offering different interest rates on Visa credit cards and some consumer loans on Nov. 1, the Raleigh-based institution told employees this week.
This follows the introduction of so-called “tier-based pricing” on auto loans that kicked off in March, marking a strategic change. It is the second-largest U.S. credit union with about $50 billion in assets.
SECU has been among the only U.S. financial institutions to offer the same interest rate to all members. Now, some SECU members pay about four or five percentage points more on auto loans than those with the strongest credit scores.
The credit union’s board contends it needs to offer better rates to members with strong finances to avoid losing their business to rivals. They also say that their highest-rate loans are still more affordable than is otherwise available to members with weak credit histories.
The shift sparked opposition from former SECU CEOs Jim Blaine and Mike Lord and other SECU members, culminating in the election of three dissident directors to the 11-member board at this week’s annual meeting. Three current SECU directors were defeated, including Vice Chair Alice Garland and longtime director Jo Anne Sanford. Both Blaine and CEO Leigh Brady said they were surprised at the outcome.
At the annual meeting, the tier-based lending strategy was criticized by more than a dozen credit union members, former employees and three newly elected directors. One member noted that the 86-year-old credit union had distinguished itself from banks by offering the same rate to a CEO or a janitor. Another called it “race-based pricing” because of studies showing that Black and Hispanic consumers pay higher interest rates on loans than white consumers, reflecting their relative financial status.
Two days after the meeting, SECU sent a memo to all employees noting that its next phase of Tier-Based Pricing “is anticipated to go live on November 1.” The SECU board approved the overall roll-out in February 2022 and set target dates to include consumer loans in the fourth quarter and mortgage loans next year, spokeswoman Sandra Jones said in an e-mail.
The memo cited the success of the auto loan program, which has sparked an 82% increase in lending to borrowers with the best credit scores from February through August. That compares with a roughly 20% increase for those with the weakest or no credit scores, SECU said.
SECU’s board approved the Nov. 1 rollout “some time ago as training, communications and programming changes to systems needed to be completed in preparation for the launch,” she said. It will include “closed-end fixed rate [loans], open-end line of credit and Visa credit card.”
The board “heard the concerns expressed by members at the Annual Meeting and plan to review our lending pricing strategy at the next Board meeting,” Jones said.
At the annual meeting, Brady said tier-based pricing was essential to for the institution’s continued success. She said SECU’s profit margin is squeezed because it has billions of dollars in low-yielding investments and mortgage loans, while needing to raise interest rates on deposits to attract consumers.
Blaine, the ex-CEO who promoted the dissident directors, says SECU’s record profit in recent years shows tier-based pricing is unneeded. He says the unusual level-interest rate strategy embodies the purpose and ethics of member-owned credit unions.
The credit union earned $587 million in the fiscal year ending June 30, compared with $564 million a year earlier and $438 million in 2021. Return on assets was 1.18%, ahead of SECU’s target of 1%. The credit union has reserves of more than $5 billion, or nearly 10.5% of assets.
SECU has 2.7 million members, or about a quarter of the population of North Carolina. About 13,000 of whom voted in the election, which included online balloting for the first time.
