Is your credit union prepared for lower interest rates?

The next meeting of the Fed is on September 17-18 and chances seem high that they’ll be lowering interest rates. Lower interest rates have the opportunity to provide some much-needed relief to the average consumer, who has felt the squeeze of higher mortgage, car, and credit card payments in recent years. For credit unions, lower interest rates can lead to increased business—but only if they’re properly prepared. Unprepared credit unions risk not only missing out on attracting new members, but also run the risk of losing current members to financial institutions who are better prepared.

Be ready for a refinance boom

Once rates start to come down, consumers who have been stuck with 7% interest rates on their homes and cars are going to start shopping for refinancing offers in order to reduce their monthly payments. More often than not, consumers want the easy option—if their current financial institution offers them refinancing, they’ll likely stick with their current institution just to avoid the hassle of moving elsewhere. This is why credit unions must be prepared to move quickly: it’s counterintuitive for a financial institution to offer members a lower rate on an existing loan, and many institutions will be slow to make these types of offers. If credit unions can get in front of non-members with refinancing offers before their own institutions reach out, they’re more likely to make the switch.

Make sure your credit union isn’t neglecting current members, either. Just as you’re preparing to pull in new business with refinancing offers, so are other financial institutions. Make sure you’re letting your current members know what their refinancing options are with your credit union quickly, so they’re more likely to stay with you, and you don’t lose members even while trying to bring in new ones.

Make sure your loan portfolios are up to date

Preparing for a refinancing boom isn’t the only way to make sure your credit union is prepared for lower interest rates—credit unions should also invest in loan data analytics solutions to ensure they have current, up to date information on all loan portfolios as economic conditions continue to shift.

Lower interest rates are likely to cause a ripple effect in consumer spending habits—keeping an eye on your loan portfolios will ensure your credit union is able to quickly respond to changing risk and make informed decisions regarding what solutions and services it promotes. Additionally, loan data analytics will help your credit union better address regulatory scrutiny. While examination practices were lowered during COVID-19, many credit unions are reporting a return to the strict examination practices that were more common prior to 2020, especially as it relates to fair lending and multidimensional portfolio analysis.

Preparing for economic changes

While lowered interest rates will give many consumers breathing room in their budget, the fact of the matter is that our current economic condition isn’t a comfortable one. Many consumers have reported a rise in credit card debt as inflation makes it more difficult to purchase necessities such as groceries, and with the rise of buy now, pay later technologies, taking on high risk debt has never been easier. And with unemployment on the rise, many consumers—potentially even your members—are at risk of default.

Credit unions need to start adapting their current strategies to anticipate potential economic downturn. We’re currently still experiencing the post-COVID travel boom, but as budgets tighten, that’s likely to taper off as consumers start focusing on more immediate needs, such as keeping up with debt payments and groceries. Credit unions should position themselves in such a way that they’re able to help members meet those needs by focusing on products and services that alleviate financial strain.

And while helping members meet their goals should always be the priority, credit unions must also keep a close eye on their own risk levels during this time. Monitoring loan data will prepare credit unions for a potential raise in delinquency, allowing them to adjust accordingly.

Changes are coming for the current economic status quo—some positive, some negative, but credit unions who prepare themselves for those changes will be able to ride the wave and meet the challenges they encounter along the way. Maintaining loan portfolios is going to be key in the coming months; by keeping a close eye on changes to their loan portfolios, credit unions will be better positioned to anticipate and adjust for risk while also meeting member needs.