The credit union tax exemption has never been under a greater threat than it is today.
That’s what I learned from attendees at America’s Credit Unions Governmental Affairs Conference earlier this month.
Even though the option to apply the federal corporate income tax to credit unions is a perennial issue in DC, it’s never been a serious one. Until now.
Jim Nussle, president/CEO of America’s Credit Unions, was on stage, encouraging everyone to focus on the taxation issue. The ACU’s campaign slogan is, “Don’t tax my credit union.”
Lobbying breakout sessions implored the credit union leader audience to tell their stories over and over again. Like how they saved a small business with an expedited SBA loan or a family from certain eviction. How they provide financial education, tools and more for those coming out of incarceration. Or how they helped to create families with adoption loans.
These stories tug at the heartstrings, and we can put dollars and cents to them. That’s powerful. Here’s one more thing your credit union can do to demonstrate you are serving members of modest means.
Microloan stats credit union leaders need to know
Based on our microloan borrower data, the average annual income of microloan borrowers was $44,781, well below the national average.
88% of borrowers earn more than $30,000 per year, so they have jobs and funds to pay back the few hundred dollars.
The average microloan borrower had a VantageScore of 557, which is deep subprime. In fact, 94% of all microloan borrowers have nonprime credit scores.
57% of borrowers were considered Community Development Financial Institution (CDFI) eligible, and 58% were considered low-income designated (LID) eligible. These are the borrowers who have historically been left behind by banks—and the ones many credit unions look to serve.
Even for credit providers marketed as more inclusive of borrowers than traditional lenders, available market data shows that their approved borrowers’ weighted average credit scores remain above 650.
Now, you might be wondering, why would I want to make loans to these applicants with deep subprime credit scores?
Because 95% of microloan borrowers who successfully paid back their microloans had subprime credit scores. It turns out they were creditworthy; they just hadn’t been given the opportunity to prove it yet.
More microloan stats you need to know
The Salus underwriting methodology can reduce charge-off rates by up to 90% vs credit score underwriting.
The median microloan borrower is 29 years old.
90% of borrowers were 41 or younger (millennials and Gen Z).
Gen Zs and millennials are 2-3x more interested in a new auto loan or mortgage loan in the next 5 years than Gen Xers and Baby Boomers. The average credit union member is 53 years old. We can’t allow the neobanks of the world to snatch up your younger members without a fight. Credit unions can profitably serve members with microloans and create long-term member value for the borrower and the credit union. More importantly, credit unions will live to fight another day without being taxed by serving even more underserved members at scale with microloans.
