The auto and health care worker strikes are poised to have a major financial impact on thousands of families located in multiple states across the US. Much will depend on the magnitude and duration of the strikes. With pandemic savings running low and higher heating costs projected, affected workers are expected to struggle to make ends meet. It's pivotal for credit union lending teams to prepare for multiple outcomes during this volatile period including higher delinquency.
“(UAW) striking workers won't be getting paychecks while they're out of work. They will receive $500 a week in strike pay from the union. But on average, that will replace only about 40% of their lost wages. That will likely mean reduced spending in communities where striking workers live.”
Immediate steps that can be taken to support and retain members include:
- Providing proactive, short-term hardship relief
- Preemptively modifying loan terms to result in lower monthly payments for longer term assistance
- Allowing members to access fully automated hardship relief within online banking to avoid uncomfortable conversations.
Let’s dig in.
The cost of nearly everything has increased in the past 3 years. Consider this:
- Housing: The median rent in the United States in March 2020 was $1,615 per month compared with $2,029 in June 2023.
- Living Expenses: Utility bills over the same time period increased over 16% per month; fossil-based heating costs hit a 10-year high last year and are expected to increase 8.7% this year, and food prices are rising at the highest rate in decades.
- Salaries: At the same time, it’s been widely reported that salary increases are trailing the rate of inflation.
Besides the daily financial pressures an average credit union member faces, their borrowing costs have risen significantly.
- the average car payment reached an all-time high of $729 per month in Q2 2023, 11.5% higher than 2022;
- payments on new mortgages now average $2,563, 29% higher than in 2022; and
- credit card rates are so high that making the minimum monthly payment is becoming financially burdensome.
Provide proactive, automated hardship relief
Financial institutions frequently wait for borrowers to request relief instead of proactively offering it. Because of this, borrowers may not know hardship assistance is available. Other borrowers, feeling self-conscious about their financial struggles, may delay seeking help. By the time they do, their delinquency may be too advanced to remediate
Today, credit unions provide hardship support during major weather events or payment skips during the holidays. They could similarly offer proactive relief only for workers affected by the strike and/or for market-driven events mentioned earlier. Credit union executives should consider preemptively offering payment skips now or at the beginning of home heating season. However, many borrowers will require longer-term solutions.
If your credit union policies allow for it, proactively extending auto and personal loan terms could help those affected by the strike. Adding 12-18 months could reduce monthly payments by $100-$150.
Term extensions are not without risks. For auto loans, it may affect future trade-ins or sales and impact gap waiver payouts in the case of total loss. Credit unions must thoroughly assess and disclose these risks during the modification process.
Automate special relief programs, and let members self-serve
89% of Americans use online banking so offering relief programs there is logical. Implementing a special hardship assistance program is only helpful if members know about it. Statement messages, emails, website banners, and pre-recorded hold messages all work, but given the clutter in these channels, utilizing the online banking channel to notify members that they qualify for assistance is more powerful.
It’s quite easy for a credit union to identify who is eligible for their relief programs, reach only those members who qualify in online banking and through email/SMS campaigns, and invite them to self-serve - with an add-on to your current online banking platform. This approach offers members privacy and simplicity for managing sensitive financial matters, while also reducing the manual support typically needed from credit unions during calls or branch visits.
Provide hardship to members while not inundating your back office
Credit unions should standardize assistance programs to prevent errors or backlog. Tips for standardization include:
- Create one channel for members to apply (preferably within online banking) and point all other channels to it;
- Create one set of eligibility rules so that applicants can be approved or denied without exception;
- Consider on-screen acknowledgements or eSign for term extension documents;
- Enable automation tools to speed up processing.
Even with assistance programs in place, credit unions may not be able to avoid increased delinquencies due to the strike and other market impacts, but preparing now will give members their best shot at managing increased debt payments this fall and winter.
Constant, a CUNA Strategic Services alliance partner, is the only software provider that fully automates loan servicing so members can resolve issues entirely in their online banking account - and then leverages insights from those actions to make relevant product offers to the member. With Constant, credit unions can reduce operating costs, empower members to self-serve, and leverage member self-service actions to deliver tailored product offerings.