As the lending and financial services landscape continues to evolve, many credit unions struggle to remain relevant. The credit union member experience is often hindered by process that have been used for years that are now outdated and inefficient as well as regulatory practices. Because of these and other factors, credit unions are quickly losing members to fintechs and other lenders. In order for credit unions to remain successful, they must remember who they are and why they exist: to serve members.

 Host and Co-founder of The Credit Union Connection Sarah Snell Cooke sat down with Joe Brancucci of CU Results, a division of CU Strategic Planning, to discuss credit unions’ battle for continued relevancy and how they can embrace innovation while maintaining their values.

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Sarah Cooke 00:00

Hello and welcome everybody. My name is Sarah Snell Cooke. I'm your co-host, Co- founder of The Credit Union Connection, and I am here today with Joe Brancucci, who probably doesn't need much introduction, but he's currently the Executive Vice President of CU Results at CU Strategic Planning. Welcome Joe.

Joe Brancucci 00:20
Good morning. Good to meet you. Good to meet you. Good to see you again.

Sarah Cooke 00:23

Yeah, we've known each other a couple decades at least, but so I'm going to let you go a little more into the introductions. Far, as far as I know you have a multi decade history in credit unions and see we were just talking about and also exactly what CU Results is because it's relatively new for CU Strategic Planning.

Joe Brancucci 00:43

Yeah so, yes, I am kind of a long time credit union executive, many decades now, from tiny credit unions to one of the largest in the country. My specialty has always been lending and really being on the forefront of innovation in that particular discipline, and being able to improve the member experience in various ways, and still maintaining safety and soundness, which is always going to be my, you know, kind of my backup plan here, just make sure that credit unions don't ever get in trouble when they do things that are new and exciting, but that doesn't mean they can't do those new and exciting things. I have not been very successful retiring. I've tried it four times so far, but, so I work now with CU Results, and CU Results is a, is a division of CU Strategic Planning, which is a division of Callahan Associates, but we specialize in actually going into credit unions and helping them reimagine their operation from everything, from the way a member comes in the door and how they're treated, to how they do loans and how they create educational curriculum for their members and their, their staff, and the partnerships they can create in their communities so that they can be, have just better CDFIs with better credit unions. And that's really the focus that we have. And we've worked with credit unions that range in size from $15 million was the smallest and $3 billion was the largest at this point, and although we have a couple of larger ones on the horizon, but again, it's, it's kind of exciting to help them see a new way of doing business and just leveraging their, their strengths and getting rid of some of the obstacles that we all seem to have in our processes that have evolved over time, and as I call it, part of it is regulatory distress, where everything is designed to make the regulators happy, rather than figuring out how to make the members happy and back into the regulations.

Sarah Cooke 02:46

Yeah, yeah, that's what I love about your lending philosophy is it really is all about the members. And so right now, of course, the Fed is making exciting news, down another 25 basis points for last week, I guess. And so how is that going to affect credit unions lending going into 2025?

Joe Brancucci 03:09

I think there's a couple of things working on lending right now. What we're seeing is that in the lower, lower tier credit, so in the lower, lower income households, they have been pretty much, not borrowing a lot, having enough trouble making ends meet. So they're not buying cars as often as they would. You know, houses are out of reach for almost every segment at this point, and the, to line up the high interest rates has been, it's been kind of interesting. Seen in the last quarter, though, a lot of activity picking up, home equity has been a kind of the credit union product for the last two years. I mean, that's the one that folks, well, if I'm going stay in the house, and I'm going to, I'm going to do some improvements to it, since I can't really move, and I'm not going to give up my two and a half percent mortgage for a 7% mortgage. And so I'm going to, you know, do whatever I can, although home equities have a downside, because obviously, they're variable rates, and the rates have significantly gone up, and some of those folks are now having payment shock, which is a new opportunity for credit unions, I think, to look at those home equity loans and maybe even a mortgage refinance might be beneficial when the figuring their prime plus something, you know, the home equity loan and when they were nothing, or if they've come up and they're now on repayment schedule, plus the interest rate, that may make them have a more household shock. So there's things like that that are going on in the industry. A lot of credit unions, though, are doing things that are not organic necessarily, because it's so hard to get organic loans. So they're buying participations, or they're buying jumbo mortgages, or they're buying loans from a FinTech of some sort, and so it's a, it's this changing dynamic going on. I think that's going to be interesting to see how that plays out because, you know, the fintechs are kicking our butt when it comes to our product, which are signature loans, and that's kind of a sad thing, since that is our product, but yet we are afraid of it as an industry. Auto dealers, well, you know, I think the captives are coming back in with some 0% financing, other deals, and so we've got to really figure out how to operate in the white space. And so that's what we're telling our credit unions. We're working with identifying what opportunities we see based on it. We do a very detailed environmental scan of their market, and we do a competitive analysis. We actually do mystery shop of their competitors and identify opportunities for them to go into those particular areas, and, you know, be the lender of choice rather than a secondary choice or not a choice at all. So those are the things we're seeing. But premiums that are that are shifting and understanding their market shifts are successful, those that aren't are are just not blending at this point, and you can start seeing that. Then, of course, you have the the industry wide issue of liquidity, and you know, they've got a lot of low interest rate mortgages, you know, hopefully, if rates continue to come down, although, for some reason, the 10 year treasury is going up as rates come down, that's so, I'm an economist, that's kind of an, kind of a weird scenario, but that's what seems to be happening. But assuming rates do start coming back down, the loans that have been stagnant in their portfolios, maybe be able to push down and start being able to lend again.

Sarah Cooke 06:25
Yeah, and recapture some of those loans they haven't been getting.

Joe Brancucci 06:29

Right.

Sarah Cooke 06:31

So, you know, credit, and I was reading the other day that credit unions have lost their edge in auto lending, and particularly fallen behind the captives who's, who are getting all the loans, apparently. How can they get back into that?

Joe Brancucci 06:42

I think there's a couple of things I've seen this, and so it's kind of interesting, and I asked that question of a credit union, you know, kind of enormous size, but they're about a billion dollars. I said, your lending year, automobile lending is really, really slow. Well, intentionally, we're only doing A plus, A credit. And traditionally, we went to B, C and D, or, you know, tier 2, 3, 3, 4, 5, and I said, why you do that? Well, because the economy may change and things may go bad, so you're not lending to your members, basically, because you're worried about them having problems. Isn't that what we're there for? So, to manage that, and if you're pricing those the risk appropriately, you should be doing okay, but there's been, there's been that problem. They have made it difficult because the captives haven't made it difficult. You still can go in and get a loan in any of those tiers. So, you know, if, I had a credit union told me the other day, well, we have the best rates possible in our lower tier credit. We're the lowest rates in town on those credits. You know, the tier 3, 4, 5, or CDEs, depending on how people rate it. And I says, Well, let me look at your loan process and guidelines. And so they made it in, kind of an American enjoy your obstacle course to get a loan in those tiers, which nobody could possibly ever succeed at. So of course, not doing any buy in, right? So price, price appropriately for the risk and loosen up some of the, these obstacles you put in place to make the folks not be able to lend. My entire career, every place I've gone, I found that to be the issue's that, we put in obstacles that we think translate to safety and soundness, and all it does is, is reduce the actual return on the portfolio, because all we're doing are A plus A, which are basically great. You know, that's a competitive rate. You don't have a competitive rate, you're not gonna get any A plus an A. The other tier is, if you do that correctly, you're gonna make a lot more income for your memberships. You're gonna have a better value, so the member getting those loans and the credit union will do better. But, you know, that's a hard, it's a hard discussion to have because a lot of boards like, you know, no delinquency, no charge offs, but we want to lend to all of our members. Your members are all C, D and E credit to begin with, so you're going to have charge offs and, and delinquency. You just need to understand how that works in the realm of pricing. And that's the problem. They don't understand risk based pricing.

Sarah Cooke 07:20
Okay. For lenders, that seems interesting to say.

Joe Brancucci 09:07

It is interesting.

Sarah Cooke 09:11

So, there was I ,actually, hot off the press. Equifax was just saying there's been a slight uptick in subprime lending, which I thought was interesting, is probably not the credit unions, or at least not a lot, some of the credit unions anyway. Why do you see that happening?

Joe Brancucci 09:31

I'd read that particular article, but, you know, first of all, I don't know what, what they're defining as subprime. You know, there is, there's subprime, which is, to me, you know someone that's below maybe 580 or 570 or something in the credit score, you know, but there's some that's, that's, that's not necessarily how they're defining subprime.

Sarah Cooke 09:55

Right.

Joe Brancucci 09:55
Maybe defining it as, as near prime rather than subprime.

Sarah Cooke 10:00

Yeah.

Joe Brancucci 10:00

And near prime lending is where credit unions are starting to slip up on. They're not doing that near prime loans, A plus an, A is prime. Everything else is near prime, until you get down to the lower tiers, you know, in the below 630s.

Sarah Cooke 10:14
Oh yeah, I was going to say, I've heard 630, referred to as subprime. It's gonna. I'm on the board of a credit union, they're gonna.

Joe Brancucci 10:18

630 is usually my marker for, you know this, these are relatively okay loans. You can manage it either through price through a much more aggressive collection paradigm. You know, I always talked about when I teach lending to folks don't do risk based lending if you don't understand that, you have to have a risk based collection paradigm behind it. Otherwise, you're taking a pail of guppies, which are these subprime, these loans that are in the lower tiers, and you're throwing them the ocean, and you're treating them like treating them like every other loan, then you wonder why your charge offs are higher than you projected them to be. It's because you need to be on them quicker, you know, on a loan in those lower tiers, you need to be on the collection paradigm up front, you know. And you spend too much time worrying about a $500 loan, and none of this time worrying about the bigger loans that are in those tiers, and you worry about the A plus person who's delinquent. Well, if they go delinquent, they're probably going to pay you, and you'll get a higher yield because you got a late charge. What a concept. So, you know, use your resources more effectively, but they don't really understand that part. You know, so when I got into institutions and kind of rework lending, sometimes rework the entire institutions, the first thing we did was build the infrastructure be able to support risk based lending. You can go out and move loans first and then say, Oh, well, we need this collection paradigm to change, or the, you know, the way we monitor it so they don't, they want to think, they don't think that's true. So, but back to the real problem is they, they don't want to have loans that are going to be problems, and it's an inherent issue. I, I've was on the, you know, speaking trail a couple weeks ago, and I was talking to a number of credit unions. I had something else, and we brought that discussion up, and they all said the same thing, the boards don't want to see charge offs and delinquencies go up. I mean, first of all, delinquencies went up in the last few years just because there was a lot of inflated credit scores based on the fact that there was a lot of government money going into the, into the, into the, you know, pockets of the consumer who kept their credit card balances low and or paid them off. And, you know, then they were able to refinance their house and paid off all their debt. So they had these really inflated credit scores, and now you're seeing a more normalized credit score, but that 780 is really a 630 and that's a big difference in how that loan is going to perform. And so, you know, as I said, get over it and figure out how to work through it and start moving on. But don't stop lending because of that particular issue. Understand what happened. And that's the other thing. We tend to knee jerk react to things. Well, this happened, so all the loans we're underwriting were bad. Stop doing unsecured lending. Stop doing anything lower tier. Well, why don't you figure out why it happened? And then when you figure that out, make any adjustments, and then move forward. And I think credit unions are not good at doing that part. They never have been. And you can see it if you, very cyclical lending in the credit industry. Things get a little bit rough, and lending drops down to very minimal levels. Then the economy seems to be great. Things can be okay. And then they get back into it, they come out. And I'm a big believer in steady as you go, you need to constantly be lending, and you're adjusting what you're doing underneath the lending activity, rather than adjusting your volume.

Sarah Cooke 13:34

Well, I think in addition to being a lending issue, that's also a marketing issue that I've seen, where nobody has a strategic marketing plan. It's just campaign, campaign. What do we need now? Auto loan, da da da, you know? And so, a lot of the way the marketing goes.

Joe Brancucci 13:48

I also think that credit unions making mistakes instead of marketing value, which would be the experience, you know. So they market price, and you in this, in this particular world, the world is social media, and, you know, it's an open market. I can find a loan in, I don't know, Iowa today, if I wanted one, that was probably better than I could get with my local credit union here. The reality of it is, you know, what's, what's going to make that different? Because an auto loan is an auto loan, an auto loan, it's just going to be rate, that's all going to be so it's got to be that experienced. But it means the credit, in my opinion, this is an opinion, but kind of worked for me over the last four decades. Credit unions who focus on treating a unique member experience will always succeed, because that's their brand. That's the difference. You know, do you listen? Do you have empathy? Or is it part of a bigger plan when you talk to the member about their life? And are you, are you going to be relevant? And Chip Phillips needs to talk about relevancy, and speech is used to give across the country, credits were real relevant in 1935 right? You're a volume employee worker, the machine and the machinist, the credit union financed your tools, which got you that particular job.

Sarah Cooke 15:00

Hmm.

Joe Brancucci 15:01

Today, you remember Boeing Employees Credit Union, unless there's something special about the membership, about that, that, the relationship you have with that credit union, there's nothing unique about the products anymore. Boeing pays for the machinist tools now. They don't have to buy their own machinist tools. As an example, because obviously, I have a lot of experience with that particular credit union, but, you know, it's, but there's no difference. Every one of the credit unions you talk to, it's the same issue. How do I be relevant? And the way you be relevant is to be, be human. I really think being human is a really interesting concept for credit unions. They're getting to be like banks. Although banks are trying, I'll get, I'll give B&A credit that if you walk into a B&A branch, they are much friendlier and much more open to having a discussion with you, or at least talking to you, than they used to be. We're much more transactional. We need to move back, you know, we need to move back towards relationships, to get rid of transactions and everything. You know, otherwise we are going to get...

Sarah Cooke 16:01

Yeah.

Joe Brancucci 16:02
I don't know, but I'm not even sure where we're going to get over time. We're just going to...

Sarah Cooke 16:05
I feel like we're commoditizing ourselves.

Joe Brancucci 16:07
Yeah, and that's a great word for it. I think commoditizing is the right word. I mean, there's nothing unique about a lot of credit unions anymore.

Sarah Cooke 16:15

Mm, hmm. And the thing is the ones that are tend to be more unique are the smaller ones that are unfortunately we see getting merged away every day, which is what guys like you try to help avoid, right?

Joe Brancucci 16:28

And that's what we're trying to, actually I work with the credit union, I don't want to say which credit union it was. But I worked with the credit union recently in the in the eastern, southeastern part of the country, and their reason for working with us was they wanted to find a way to make sure that they didn't get merged. They wanted to figure out how they could be relevant in their communities in a way that would make them unique and be able to sustain their model. And we think we gave them that particular path, and that, you know, it's caused them to really sit and think about things in a different, in a different way. And, you know, they wanted to make sure that members were empowered. And they had, you know, they had financial empowerment, and that they, that they could everything that they did could focus on that. We built the model around financial empowerment, and everything that that means, and that's, that's really what ,if you think go back to the relevancy. You go back to the 1930s and 40s. I mean, the relevancy was that we were giving them the tools to start a household, to be empowered to do that. And, you know, we were there during that period of time. We've gotten, you know, when, when we stop doing signature loans, and we're afraid of unsecured credit, because it's going to break this down, rather than indirect loan, which is basically an investment, it's not a loan anymore. Let's get real here. Those members that go through dealers are not, are not, are not loyal members who joined the credit union, they bought a, a shiny Mustang that happened to have a loan that they needed to finance it, that happened to have a credit union attached to it, that's a long distance from making a relevant decision, that the credit union is going to be relevant in my life, and so, you know, and that's, that's an interesting thing, having been a proponent, and, you know, I sat on the board of Tuttle, and I did all those things, I think we kind of got, got away from the reason that we started to do indirect loans was to give the members, the members, access to loan products at the dealership, and now we've got the dealerships becoming the source of membership. So different, that's a different paradigm.

Sarah Cooke 18:38

Definitely.

Joe Brancucci 18:38
It's not right or wrong. It's just, we have to understand what that's done to our our ability to...

Sarah Cooke 18:43
Provide volume, but then volume doesn't necessarily provide the depth of the membership.

Joe Brancucci 18:49

But you're also, if you're getting, if you're using the same race, if you're a member, and I remember the same credit and John is not a member of this credit union, and John gets an automobile loan at the same rate you and I get it, and we pay the deal at 2%, we just took 2% of the cooperative value and send it to a third party, which reduces the overall value of the membership.

Sarah Cooke 19:14
Which probably wasn't that valuable lifetime over to continue to start with, right?

Joe Brancucci 19:20

But you know, it used to be a very small dollar amount. It's 50 basis points or something. And, you know, the paperwork, you could equate the expense to the dollars, but now it doesn't work that way. But again, what did you get? So you got a loan, okay? Because you have bought a package of loans from somebody, you know, participation, package of loans, that current market rate, at the current you know, whatever the value of that loan package is, versus paying a premium for a market loan.

Sarah Cooke 19:48
And diversified that your loans because you have more than one.

Joe Brancucci 19:52

Right. So again, there's no right answer to this. But you know, some credit unions have adopted a full, fully indirect lending strategy, that's all they're going to do. 80% of the loans are going to be, are indirect. So you're getting members in and you're getting a loan in. But what's your, what's your loans per member? You know, I can remember a time when I was at the large credit unions. We used to have, you know, a ratio that we would shoot for, you know, of having new member in the first four years, we'd want to have three relationships. They had a mortgage. We wanted to have six plus relationships, and we measured it. And that was important, because that meant we had a relationship with the members. We didn't have a single product, you know, transaction with the member.

Sarah Cooke 20:37

The efficiency is almost killing us. You know that we're trying to be efficient, like, for example, doing all in, indirect auto lending. But there is a point where efficiency goes too far, which is that's, I mean, I'm sure it's hard to fill it, feel out, you know where that that line is.

Joe Brancucci 20:56
Yeah, but I think you can be very efficient.

Sarah Cooke 20:57

Oh, yeah.

Joe Brancucci 20:59

If, if you have an alignment between strategy, the strategic marketing plan, and the strategic lending plan. And when there's alignment there, it works wonders. I mean, I can give you many examples of credit unions I have personally been involved with, the credit unions that I have worked with that have been able to align those things and be very, very successful. And it's not, if marketing is if, well, actually, it goes back to everything, everything in a credit union, a credit union has to be aligned. I mean, that member experience the first time they walk in has to be welcoming. The arms have to be open, and we have to be listening to the member, whether they're a 630, or 780, we need to look, look at them the same. You know, pricing may be different, but how you treat them should be the same. And are you really, are we really planning to be a financial partner for life with that member? Are we really doing that? You know, there's a credit union I work with. It's one of my favorite credit unions. And in the ideation session, the CEO said, Well, I want to be the member's financials partner in the journey of life, financial partner in the journey of life. That's a really significant statement, because it really epitomizes what credit unions should be doing, right? No matter where they are in that continuum, and they join you, you should be their partner in their, in their, their financial partner in the journey life. There's ups and downs, there's good times, there's bad times. There's needs that, you know, my favorite, my favorite analysis is when you think about why formation households don't go to a bank or go, or get into the habit of going to a, a payday lender or check deposit ,check cashing company, because they need their first deposit for a rent on their apartment. They go to their credit union. They say, Well, you just, you just, you know, you don't have a lot. You just started you got out of college, you just started a job, you just got out of high school, and you just started your job. So you don't have a long enough job history and blah, blah, blah, blah, blah, so you need to go elsewhere to get that first loan. So we just sent away our members because we didn't understand the fact that, you know, what's special about having a long term you know, Well, they've been working for three years, so they got fired next week, you know? What, did you, did you take the time to understand where they were in that continuum? So, yes, they just graduated high school, they went to a trade school, and now they have a job. But dental hygienists don't just take as one, you know, they want, and so they just started the job. They went to school, though, for it, you can see their diploma. There's another way of approving that loan, rather than saying, No, we're not going to do it, because you don't have more than two years in your job.

Sarah Cooke 23:52

Yeah.

Joe Brancucci 23:53

And if there was no way they could have two years in the job based on how well they are or how far they come out of school, you take a doctorate. That would be great one. They've gone through all the school, medical school, medical school, everything else. And they come in and they get, they want to, they're, they want to, a loan for an apartment or whatever, for their deposits. Well, you haven't been on the job long enough. Just went through 15 years of school, you know. So, you know, we have to be, we have to be intelligent about it. We really have to step back from our process and understand who the person is, and what they how, who they are, where they are in their life stage, you know. What, what, what experiences have they had? Is there another way of approving those loans, rather than looking at some checklists that says they have to be there for two years? So I've recommended almost every one of them come up with some alternatives to that. Now, I get it, if somebody you know six months into jobs go get a job, there's something wrong with the person, if they can't keep a job for more than a few months, but that's a different scenario than what I just described.

Sarah Cooke 24:52 Right.

Joe Brancucci 24:53
But yet, we met, and I think, we have found this to be always interesting, credit unions tend to have policies and procedures based on the one incident that was really bad that happened some 25 years ago. So we're going to continue that thing going on forever and ever. And I'm kind of an efficiency expert, so give me the value of that step, but there's no value when you get rid of the step. But same thing with some of our policies is that we have to kind of look at why, why are you asking for that requirement of every applicant that comes in the door? And when, usually when I forensically go to the to the folks and ask them why? Well, in 1987 we got we got taken advantage of by a member who did this, this and this and this and this. So one member in the last 50 years, and you have a process now to make every member go through that hoop that produces no value for the transaction. And...

Sarah Cooke 25:46 Sounds like regulation.

Joe Brancucci 25:47

Yeah, well, that's one of the reasons, that's one of the things we do with the with CU Results, we actually kind of strip it back and ask why? Explain to me, yes. Now sometimes there's a good reason for it, but if they say because or we've always done it that way. My favorite terms that you know, usually shake my head and say, Well, what if you, What do you stop doing? What would be the risk? Well, we could have an incident like that. Okay, but you would make, if you made 10,000 new loans and you had one incident, is that a problem?

Sarah Cooke 26:16
Yeah, exactly. You know, you look at the 2% if you focus on the 2% of members who defraud you or whatever, versus the 98% that are doing their jobs, you know.

Joe Brancucci 26:27

Right. Most, most folks are not going to get you. Now, obviously, if you have Nicole's in your processes and whatever else, you don't do the right kind of process, you're going to get taken advantage of. But if you're doing the right things, and you, you know, you've got a credit model, but that wasn't last validated when Eisenhower was President. You know, some of the, some credit unions are using models that they haven't validated in 10 or 15 years. Why are you using those models? Well, because, well, because we didn't we never thought about validating them again. Well, did you know that they only have an average life of two or three, maybe five years at the most? After that, they've become obsolete, and they may not be predicted. So they said to me, so what's the problem? I said, Well, let's look at this. If they're not projecting losses appropriately, and your pricing based on that model, and your underwriting based on that model, you may be either too conservative or too liberal, and that's not going to bode well, because what's going to happen, remember that board that doesn't like delinquency and charge off, you're going to have unexplained delinquency and charge offs in a tier that you weren't having it before, because your tier is incorrect.

Sarah Cooke 27:40

Right. Yeah.

Joe Brancucci 27:41

So as you know, or you know, I'm totally supportive, you know, Rex Johnson method and those, those kind of schools, but you you have to look at and evolve those models that you have underneath. You can't just have it once when you did the training 25 years ago with this one anymore.

Sarah Cooke 27:57

Right. Exactly.

Joe Brancucci 27:58
And he would be, if he was still alive, he'd be the first to tell you need to make sure your models are working.

Sarah Cooke 28:02

Right, yeah.

Joe Brancucci 28:03

But, so to me, it's just you gotta evolve. Lending is not a static activity. It's an evolution. It's an activity that has to evolve. It has to evolve with market conditions. The risk model has to evolve based on things that occur, that happen. Your universe may change.

Sarah Cooke 28:20
Absolutely. Just our recent history in the last 15 years or so has been crazy financial markets.

Joe Brancucci 28:27

And I remember the first time there were credit unions that did credit scoring in the, in the 90s. I mean, Diane, Dr Goldman one was probably the first one who did it. I remember going to your office. He had, I don't know, six and seven foot high reams of, you know, green bar paper with all the credit model stuff in it, whatever. But, you know, she was one of the first that thought about it and then did help go and a few of the others, and I used to, when I first got to the east shore, I used to actually go out in the road and teach credit scoring, because they didn't understand credit scoring. Credit unions weren't doing credit screening. They had, you know, they had their own little sheets. I can remember when I first started being a lender, many, many decades before that, where we had good in house scoring models that we would create. You get five points for having an account with the power company and, you know, so many points for something else. But it was, it was really kind of arbitrary. It was just, it was just, you know, homegrown, but when we started using credit scoring, you know, credit scoring is just a, it's just a traffic model, right? It's just, it's a traffic manager. It tells you where to do and what to do with the loan. So if it's an A plus, you know, it's an 850 credits, don't worry about it. You're not going to go back. If you walk into a dealership and they run that credit report, which they always do, and you have an 850 credit report to say, buy anything you want to, you can afford anything you want. Don't worry about it. We'll figure out how to get financing for you, because they know they can. We don't do that. You know. We go and we want to do 47 other analyzes, and it will be other stuff. But what do they know that we don't know?

Sarah Cooke 30:00

Yep, for sure.

Joe Brancucci 30:02

So, but we're much smarter than most lenders. We have the most sophisticated systems and understand everything. Not. But, and I'm gonna go for my own teams. I mean, I've had, you know, we I can remember at the last credit union that we would go through the lending policy and guidelines once a year and say, Okay, why are we doing this, this particular step? And we would, every year, we probably put out 10% of the steps just because they didn't make sense anymore. Or we were using a new model of some sort of, you know, we added AI. Or we would, we would go and have alternative credit models or other things that would change the way we do things. Or we were able to validate income, you know through electronic means, rather than you know through a piece of paper. And so you get rid of a lot of steps that way.

Sarah Cooke 30:46

Mm, hmm, yep, yep. Great efficiencies there for sure. So for CU Strategic Planning, CU Results, for CU Results, what are the biggest issues, maybe the top three biggest issues you're seeing, and how are you solving those with your credit unions?

Joe Brancucci 31:03

The biggest issues we're seeing, and it's almost in every case, there are artificial obstacles that are put in place, whether it's a loan application fee, which to me, is like so 1960, but a loan application fee, because you have someone who's in a low income or moderate income, you're going to give you 50 bucks, and you're not giving it back so the loans denied. Why would I give you that even to try to make a loan? We're seeing artificial deposit requirements with loans, but more importantly, we're seeing documentation requirements that do nothing for the loan. You know, asking for two references, which is again very 1960s way of underwriting loans. I can tell you that because I was around when that started. It really serves no purpose. And you asked J

the head of collections, well, okay, so you have this reference in here when the loan goes bad, what, what do you do with the reference? Well, we fall but you can't really say anything about the loan because of the laws that have been passed since that time when reference you could ask somebody else, well, no, but we can see if we can track down the member. But how do you even have that conversation, since you can't tell them if they have a loan with you? So what are you really getting it for? And the answer is usually dead air. I'll use that as an example, because we have a loan application on the consumer side. You know, I can go to one of the fintechs in two minutes and get a loan, and the money's in my account. And I just worked with a credit union, maybe 35 or 15, 35, or $40 million in assets, old time credit union. Good, good, little credit union. So I said, How long if I commit to an auto loan, how long does it take me to get it? It'll take two days. Two days. I said, so how many auto loans do you actually close? Well, we don't close a lot of the applications we get because members gone elsewhere and got the loan. Why do you think that is, 'cause I'm a question guy. Why? Well, because I got the loan faster of the dealership, so you are weren't able to help your member because it took two days to get the loan. They got the loan elsewhere. Do you think maybe your process needs to be revised? Well, but this is the way we do it. So how's it working for you? How's it working for you? Yeah, I know what you aren't buying because I know what it wasn't. It isn't. And you know, why are you losing those loans? And we used to do an analysis. I'd recommend this to loan credit unions, I said, once a year, ask your credit bureau to run a loan, a an analysis of your membership and find out how many dollars in loans they did elsewhere this last year, and you'll be surprised that you may have had a great year, and you did ten million worth of loans, and your members did $100 million worth of loans elsewhere. Where were you? And if we start looking at things in that perspective, it starts changing your process, because you have to figure out why. And I think that's the real issue. I think loan processes, I get, but you know, why do you, why do you underwrite a home equity loan the way you underwrite a first mortgage? I worked at Freddie Mac for five years, and I helped develop some of the guidelines, and I will tell you, they were never intended for a home equity loan. They were intended to make mortgage loans investment quality, so that the securities that they went into would be ubiquitous in nature, and the investment community would like them. Those requirements are not necessarily what makes a loan good or bad. It makes a loan investment quality. It doesn't translate to a home equity loan, which is basically a consumer loan on steroids, you know, under a certain amount of money. Why wouldn't you do them the same way that you do an automobile loan? You give me $150,000 loan for Mercedes, but you and give me, we'll just say, in a day, but you take three months to do me $150,000 home equity loan. So I don't think we ask ourselves those questions. We're all very proud of what we do, and we think we have the best system in the world, but sometimes you better ask your members how they feel about the system.

Sarah Cooke 31:48

Right, right.

Joe Brancucci 32:21

And that, that exercise I said about running, and the credit bureau run against your membership is a great exercise. Well, I guess they don't really like you as much as you think they do. Right. Yeah, no, I'm sure that's very eye opening at most, if not all, credit unions. And you know, what else is a big credit union? Those numbers used to be really scary because, you know, we would do a lot of loans, and you look at what the members did, it was like, wow.

Sarah Cooke 35:42

Yeah.

Joe Brancucci 35:43

How can we capture some percentage of that? We would have had, you know, instead of us net seven or 8% net growth this year, we might have had a 15% net growth and still been fine, you know, as far as everything else, but again, that's the real problem. I think our processes are just too antiquated, and they're built in tradition and folklore, and they're not necessarily built from the risk management perspective.

Sarah Cooke 36:06
Right, right. It's no longer, I know Bob's cousin because he works at the you know, no?

Joe Brancucci 36:13
Not anymore for even the 15 million dollar credit union anymore, yeah, 4000 members or whatever. You can't tell me that the loan officer knows all 4000 members.

Sarah Cooke 36:21

Right.

Joe Brancucci 36:22
It's not possible, you know.

Sarah Cooke 36:24
And so why don't you give us a star example of and what characteristics make this credit union a star example of, like a CU Results client credit union?

Joe Brancucci 36:37

Trouble is a lot of the ones, the stars don't need us, but the star credit union, you know, I'll use a credit union I left, which is, in my opinion, has a lending is a lending machine. And I don't mean that in derogatory sense, but if you can go online at three in the morning and get a signature loan and have the money in your checking account at three in the morning because you need to fly to Aunt Tilly's funeral, that's a star credit union. And there are credit unions today that are doing that, just that. And so how do you get to that point? You know, you've you've got to get, you got to put, first of all, I blame a lot of this on COOs that are not innovative, you know, or they don't have the ability to be innovative, because the leadership above them is is not willing to change the process. You know, see the old mortgage file thing, you know, if the green, if the file is not thick, then it's going to be picked out by the regulators. I don't know if I ever told you the story, but when I first started out Viola Billings, was the chairman of the board of this, the agricultural and industrial cooperative I first worked for. And she went to the board the she said, I'm going to teach you some things today. Okay, she was a very large, tall lady with big bun on her head, I slightly remember. But she was very smart, and she was a chairman of the board of this, this institution. She walked in the vault and she said, that's a good loan file and that's a bad loan file. I said, they're both green. She said, a good one is really fat, the bad one is really thin. I said, Okay, why? So because when the examiners came in, this is back to kick out all the thin files and go through that, you know, being 20 year old, that's kind of like, yeah, okay, whatever final Mrs. Billings, whatever you say Mrs. Billings, because she said, and you know what, when the examiners come in in three months, you're in charge of working with the examiners. So I went into vaults of examiners. Lo and behold, they took out every thin loan file. So what did, the new, I got promoted and was in charge of lending, I told them stuff the damn files. Get dog licenses.

Sarah Cooke 38:52

Exactly.

Joe Brancucci 38:52

Whatever, whatever you can get to make that file as thick as possible. They never got pulled, because only the thin files got pulled. That's a true story. And unfortunately, that folklore travels through and so what happens generation to generation? The big file is really necessary, getting references, which was maybe necessary in 1970 but in 2024 not so much so. So our processes look that way too, though. If you put a lot of documentation, the loan is better. No, it isn't. The loan is only as good as the characteristics of its risk model, not, not the, you know, characteristics of the loan file. You know, if you put a dog license there, it doesn't make that loan file any better than it was before. You're just, you're just getting paper and, you know, to me a loan file that doesn't, ECU I can remember, I told Pat Smith, who was the boss at the time. She I said, What's your vision? I said, my vision is to have to get to the point where there is only one person in lending doing 10 times the amount of loans we do today. She said, Well, it's not possible. It's like, that's a figurative discussion about getting to the point where we need less and less and less so that we could get to the point where, technically, you'd have one person being able to carry many, many loans. And so that's what the process was. We kept on reinventing and reimagining the process, rechecking and make sure the risk model was still in place. Our losses were what we expected them to be. They were manageable, you know, but evolving it to get to the point where we got more and more efficient. So the member experience was great. Best story. Member who worked at the Boeing Company had bought an automobile loan 10 years prior to this particular time that I was there, and he was a friend of mine, he said, he, he said he relayed the story a couple of days later. He says, Well, I took the entire day off from work because I knew it's the last time I went for a loan of credit union. It was going to take a whole day to get the loan check, to go to the Met, to the dealership. He says, I got there at nine o'clock, and at 9:12 I was walking out with my loan check, and I had the rest of the day free to go drive in my new car. That story, and I told that many times, because that story is what happens when you reinvent, reimagine your loan process.

Sarah Cooke 39:11

Yeah.

Joe Brancucci 39:12

So what happens? It was wild, right? His expectation was eight hours of sitting in a chair reading a book. There was no Kindles and there were no iPhones in that particular generation. But instead he was able to go driving his car on a sunny day in Seattle, which is unusual to begin with. So to me, that's the real problem, is not really being willing to look at what you do and stripping it back and really starting to make it easier. And it's been interesting. I've tightened up a lot of lending processes for credit unions that we worked on. At the same time made it easier for them to make loans. And it's kind of a, at first they didn't understand. And I said, you're managing a risk model, but the experience is a lot better. You're doing it behind the scenes. The member doesn't need you see your gerbils in action. They need to feel you know that it's a great experience.

Sarah Cooke 42:04
And that means getting them in and out as quickly as possible, usually.

Joe Brancucci 42:07
And, and wowing them. You want to always wow them, and you want, you want to also make sure that what they thought, what you say, and what they feel, are aligned.

Sarah Cooke 42:15

Yes.

Joe Brancucci 42:16

Because when they are that that's a good relationship, they leave thinking, well, that's my credit union. And they go out and they tell, you know, their friends and family about that credit union.

Sarah Cooke 42:25

And that's how you decommoditize it.

Joe Brancucci 42:28

Yeah, that's how you decommoditize it. Decommoditize it, yes. And I think the interesting thing is, if you look at some of the larger credit unions, some of them operate still as little credit unions. They're big, but they still, they still operate as little credit unions, as far as that personal touch, that having that you know, having a personality. I think the other thing about lending, until a credit union can tell me who they are, they'll never be a successful lender. Who are you? Who are you, what you know, you tell me in two sentences who you are as a credit union. If you can't tell me that, I can't tell you why I want to loan with you, because you can't translate it to your products and services. So in these credit unions, you know, embraceful saying financial empowerment, I now understand that their mindset is to help members have all the tools necessary to live a, you know, healthy financial life. Now, I understand how the loans fit into that, right? Their dreams, right? I need a car to get to work, school or worship. That's actually another thing. Strategy is at the product level, are you lending in auto? Doing automobile lending to have, get automobile loans? Or you're vending to get members into vehicles to get safely to work, school and worship. Those are two different things, and they do change how you actually look at the loans. And once you become a credit union and do the work, school and worship rather than just the car loan, indirect loans become less and less appropriate because they don't fit into that other model. It may be they just want car loans for car loans, in which case, that's what you get. So to me, it's really understanding why you lend, and when you understand that, then you can figure out how to make the product work, and then just get rid of all the things that don't feel right. Always, I always ask, tell me the value of that step. Tell me how it improves the safety and soundness of this loan. Tell me because you can't be that getting in step.

Sarah Cooke 44:27

Yeah.

Joe Brancucci 44:28

Just get rid of it.

Sarah Cooke 44:29

Yeah, no, perfect, makes perfect sense. So Joe, as you know, I offer my guests final thoughts. We've talked about a lot today regarding lending. What are you going to leave our credit union audience with? What's your final thought?

Joe Brancucci 44:48

I still believe that, I still believe in the credit union model. I think that we have the ability to regain our position as the premier consumer lending vehicle in the marketplace, but we've got to go back to who we used to be in some respects, and everything always new again to me, being relevant, understanding how to listen to a member, understanding how to structure a relationship that benefits the member first, versus the credit union first will always be successful. And I think that's, that's the key. And, you know, I've got to, I have a successful track record, as most of the folks listening to this probably know, and it's all about, you know, trusting the value of a cooperative in a way that provides a unique member experience and value to those members so they understand the difference. Because we can shout the differences, and we can talk about our eyes wide open, and all those other things, but it isn't what you're called, it's who you are. And I'm going to relate it to a story that have, a debate that occurred in Credit Union Times, and the year, I'll be 2012, around a name change. And there are some folks that were really upset that a credit union dropped the Federal Credit Union and called themselves financial and that credit union today is three and a half billion dollars and has 250,000 members, and quite successful because we knew who we were, and the members understood who we were, because our actions were aligned with what they thought, what we said and what they felt. And to me, that's all credit unions have to do. If they could do that, they'll be successful. It isn't what you call yourself, it's who you are.

Sarah Cooke 46:44
Yeah, those were fun. Yes, I do remember those days. Well. Thank you so much, Joe. I appreciate your time and your expertise today. And you know, look forward to seeing you soon.

Joe Brancucci 46:56
Yes, good to see you, Sarah. Have a great day. Bye bye.