It's Not about the Rate: How to Create Loans that Meet Individual Members' Needs

Ray Birch
June 11, 2009 | COMMENTS

St. Paul Federal Credit Union believes that while solid loan rates play a role in attracting members, creating lending solutions that meet individuals' needs keeps members doing business with the credit union.

That approach, said CEO Theresa Malone, is responsible for the credit union placing high in Callahan's Return of the Borrower rankings. "Not to sound trite, but it really is people helping people, and in doing so we build long-term relationships," Malone said. "I try to get staff away from always focusing on rate. Because you can give a good rate today — but it's like walking into a store and buying something on sale, and then next week it's cheaper. You will never win when you're just rate-focused. You want to build that relationship, and we do that by personalizing our service to each member."

That can mean coming up with creative loan terms. "We don't show members a rate sheet," Malone said. "Instead, we ask what they need their payment to be, and we listen to them to find what works best."

It also means being convenient. "If members cannot come to the credit union to close the loan, we will close at their homes," Malone said.

Building strong relationships requires St. Paul to invest time with members, to make sure they understand the offers, which helps the credit union understand members' financial situations.

"With car loans, for example, if we think members are paying too much for a vehicle, we'll tell them that," Malone said. "We have relationships with local dealers and we can often find them a better price. We know that reduces our loan amount, but we are here to help our members first."

Malone admits SPFCU matches rates at times. But it is more likely to offer incentives to keep members in-house. "We let them know that a Visa with us gets them 10 basis points off the loan and another 10 basis points for checking," she explained. "It's helped us build our average total relationship to about $20,000."

The $131-millon credit union expects to increase loan product penetration this year by emphasizing used car loans and Visa credit cards. "That strategy is due to the economy," Malone reminded, "with people looking more toward used cars and banks adding credit card fees and cutting credit lines."

St. Paul 's loan and deposit rates are competitive: At press time a 48-month new car loan was 5% APR for the best paper. A 30-year fixed mortgage was 4.875% APR. For deposits between $25,000 and $50,000, a six-month CD paid 2% APY and a one a one-year certificate 2.33% APY.

While the credit union's approach to business places members first, that hasn't hurt business. SPFCU's capital should remain above 10% by years' end, even after taking a little over a $1 million hit from the corporate assessment, Malone shared.

"The bottom line is important," she said. "But if you always focus on it you never win. Focus on the member, and if you do that, your bottom line will come along."

This article appeared at www.cujournal.com and is reprinted with permission.