Sunday, May 26, 2024

State Employees’ group dings credit union for lending shift

The N.C. State Employees’ Credit Union’s plan to change its unusual lending policy, detailed in a recent Business North Carolina magazine story, is sparking opposition from the 46,000-member State Employees Association of North Carolina.

This week, a spokesperson said the second-largest U.S. credit union will phase in “tier-based lending” starting in March. SECU officials previously had not detailed the start date.

SEANC President Martha Fowler asked SECU to reverse its plans for tier-based lending, according to a Feb. 18 letter to board Chair Chris Ayers. Should the board not rescind the plan, Fowler said the group may attempt to elect a “more representative board and leadership at SECU.”

State Employees’ Credit Union in downtown Raleigh.

SECU’s board has approved a shift away from its policy of offering the same loan rates to its 2.7 million members. No other major U.S. financial institution uses a similar strategy, which reflects an intentional effort to favor members of more modest means. Others offer lower borrowing rates to customers with stronger financial profiles.

The credit union says the change will “allow us to better and more equitably serve all members.” SECU says by offering tiered rates, it can attract more business from members who have been opting for other lenders with more competitive offerings. Officials say they will continue emphasizing loans to members with lesser credit scores, often at better terms than available elsewhere.

SEANC’s board voted to send the letter to Ayers after hearing a presentation on SECU’s plans from former CEO Jim Blaine at a weekend meeting, Executive Director Ardis Watkins says. Blaine, who led the credit union from 1979 to 2016, has sent a series of emails to SECU’s board in the past month, blasting tiered lending and urging Ayers to explain the institution’s strategy.

Leigh Brady, the credit union’s chief operating officer, is scheduled to speak to the SEANC board in May, Watkins says.

Mike Lord, another former CEO who worked at SECU for more than 40 years, estimates that at least 60% of members would pay higher interest rates under tiered lending. Many members with lesser credit scores will be paying 2 percentage points or more on their loans, compared with current rates, he estimates.

SECU says it will work closely with members to offset the impact of changes, including offering more financial counseling and progams to improve credit scores.

“Many of our members took out loans at SECU when they couldn’t get them anywhere else,” Watkins says. “There’s lots of loyalty on the line.”

While representing a small minority of the total state workforce, SEANC has exerted political influence for decades.

The credit union elects three or four directors at its annual meeting, which is typically held in October.

The credit union is financially strong with robust capital that exceeds regulatory requirements. Assets totaled $50.97 billion as of Dec. 31, 2022, compared with $51.65 billion a year earlier. That marked the first annual decline in its 85-year history. Other financial institutions have also reported lower assets, citing declining values of stocks and bonds held in investment portfolios.

A spokesperson notes that many U.S. and N.C. credit unions and banks reported lower deposits in 2022, after growing sharply in 2021 because of federal stimulus payments related to the pandemic. SECU’s deposits declined 0.8% in 2022 as members withdrew money to pay for higher living expenses, the spokesperson adds.

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