Attorney Andrew Condiles
and shareholder Matt Urban
recently exhibited at the CrossState Connect Annual Convention
in Hershey, PA. This conference featured educational networking sessions with emerging leaders on key industry topics to learn how to make credit union operations run smoothly. Now, Andrew is sharing his top takeaways!
Three interconnected challenges that many credit unions are facing were topics of conversation during this interactive event:
- Staffing shortages
- A more challenging economic environment
- Increased delinquencies
1. Staffing Shortages
Credit unions, like the majority of institutions across the U.S., continue to have difficulty finding qualified individuals to meet their staffing needs. The staff in place is often overworked and simply stretched too thin. A number of presentations and vendors directly or indirectly sought to address this issue by offering services that would outsource some of this work.
2. Economic Environment
The Federal Reserve’s
decision to raise the federal funds rate in response to a historically high level of inflation has presented both challenges and opportunities for credit unions, many of which have been well documented. However, the consequences of these two economic forces have resulted in two lesser-discussed but significant issues for credit unions:
- Increased operating expenses (including payroll costs); and
- The narrowing of an avenue that households used to pay off debts.
Rising interest rates make debt more expensive which reduces the amount of money that an applicant can borrow. Homes are a source of cash for consumers who refinance the mortgage on their homes to pay off existing debts. With higher rates, fewer of these transactions get underwriting approval and less cash can be extracted. Put differently, higher interest rates have made the repayment of non-mortgage debts more difficult for cash-strapped homeowners.
3. Increased Delinquencies
During the past six months, the delinquency rates on credit cards and auto loans have increased. If the U.S. enters a recession, as many economists are predicting, the percentage of loans that go sour will likely increase significantly. As many vendors discussed, effective risk management can serve to minimize the number of non-performing loans a credit union holds.
However, even a well-managed loan portfolio will have an increased number of charge-offs during a period of higher delinquencies. Having a team in place, which is more difficult to assemble internally as a result of staffing shortages, to recover on these debts is likely to become increasingly important in the near future.
These blogs are not a solicitation for business, and they are not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.