By Roy Urrico
Finopotamus aims to highlight white papers, surveys, blogs and reports that provide a glimpse as to what is taking place and/or impacting credit unions and other organizations in the financial services industry.
Experian’s new report, State of Credit Unions, examines key consumer credit trends related to auto loans, unsecured personal loans and unsecured credit cards.
“As consumer credit behaviors change in a fluctuating economy, credit unions must strike the right balance between risk management and membership growth,” is how the report kicks off a deep dive into trends in originations and delinquencies among credit union members, how credit unions fare against other financial institutions, and strategies to attract new members and mitigate portfolio risk.
The report was created using Experian data from January 2022 to October 2024. The report specifically refers to the four groups analyzed (smaller credit unions, larger credit unions, fintech lenders and regional banks). Smaller credit unions are defined as institutions with less than $10 billion in assets and larger credit unions as those with more than $10 billion in assets.
Members’ Delinquency Levels
Across auto and unsecured personal loans, Gen Y and Gen X represent most of credit union borrowers, according to State of Credit Unions. “Boomers lead in unsecured credit cards, followed by Gen Y. Gen Z, being younger and likely new to credit, accounts for a smaller portion of borrowers across all loan types, highlighting the importance and opportunity to engage this cohort.”
Delinquency levels by product type:
Auto loans. For credit unions, 30-plus, 60-plus and 90-120-plus days past due (DPD) have increased gradually since mid-2022, “likely driven by high inflation and interest rates,” according to the Experian report. Thirty-plus DPD delinquencies were consistently the highest for both small and large institutions (up 12% and 6% year-over-year, respectively), highlighting early signs of financial stress among borrowers. “Fintech lenders have significantly higher delinquency rates for auto loans compared to credit unions,” said the report. Though there was notable decline and stabilization in 30-plus and 60-plus DPD rates, 90-120-plus DPD rates appeared to pick back up. Regional banks maintained moderate delinquency rates but increased steadily toward the end of 2024.
Unsecured personal loans. Over the last two years, delinquencies have risen across the board for unsecured personal loans. “Despite this, 30+ DPD delinquencies among smaller credit unions have consistently remained lower than those of fintech lenders. Larger credit unions experienced a sharp uptick in early 2023 but managed to level off in 2024,” Experian reported. Additionally, following dips between February and March 2023, delinquencies for fintech lenders increased slightly but remained relatively stable toward the end of 2024. For regional banks, early-stage delinquencies plateaued between January to May (22% decrease) and have since stabilized after rising in August.
Unsecured credit cards. “In terms of credit card delinquencies, credit unions saw a slight uptick in 30+ and 90-120+ DPD rates during the second half of 2024, though 60+ DPD rates appeared to normalize,” said the report. Fintech lenders saw a “staggering 118% increase” in 60-plus DPD delinquencies between September and October 2024. Regional banks fell between credit unions and fintech lenders, showing a moderate increase in delinquencies
State of Credit Unions noted a market opportunity for credit unions. “Across small and large credit unions, 30+ DPD delinquencies for auto loans, unsecured personal loans and credit cards showed a steady upward trend, signaling the importance of early intervention. Credit unions should consider incorporating advanced analytics, which encompass expanded datasets, predictive modeling and machine learning capabilities, into their portfolio management and collections strategies to proactively monitor and mitigate risk.”
Loan Origination Volume
State of Credit Unions analyzed:
Auto loans. “Smaller credit unions consistently maintained the largest share of auto loan originations compared to larger credit unions, fintech lenders and regional banks, with the highest peak in July 2022 (over $1.7 billion).” The report continued, “After experiencing a slight 5% dip between January and March 2024, they sustained steady loan activity throughout the year, reflecting strong member engagement. Though contributing less to the overall market share, larger credit unions upheld stable origination volumes, with some momentum building in the second half of the year.” Following a sharp 96% decline spanning a seven-month period from July 2022 to February 2023, auto loan originations for fintech lenders have since picked up and stabilized. Meanwhile, regional banks demonstrated a gradual upward trajectory from February to June 2024 and has since leveled off.
Unsecured personal loans. Originations for unsecured personal loans fell “subtly” year-over-year for most lenders in 2024.” Smaller credit unions exhibited stable loan origination activity, with a slight 5% decline year-over-year. Origination volumes for larger credit unions also remained relatively level, with minor month-over-month (MoM) fluctuations. Fintech lenders held the largest share of unsecured personal loan originations. After a decline at the end of 2022 into early 2023, volumes began to level out and grow throughout 2024. Regional banks revealed a modest and steady trend, with minimal variations over the course of the year.
Unsecured credit cards. All lenders experienced a decline in origination volume for unsecured credit cards year-over-year, with minor fluctuations throughout, revealed the report. “For credit unions specifically, smaller institutions saw a 7% decrease, while larger institutions saw a 5% decrease. Like unsecured personal loans, fintech lenders had the highest unsecured credit card origination volumes compared to other groups, though they experienced a 26% decline year-over-year. Regional banks maintained smaller but consistent amounts, with a 3% decrease year-over-year.”
As far as a market opportunity for credit union, Experian proposes “Credit unions, especially smaller institutions, have gained significant traction in auto loan originations. This suggests that members are increasingly turning to credit unions for competitive rates and personalized services. To maintain momentum, credit unions may want to further enhance their marketing and retention strategies, such as automating the lending process to drive greater efficiency or leveraging data-rich insights to create highly targeted offers.”
The study also reported “Unsecured personal loan and credit card originations remain relatively level for credit unions, but there’s opportunity for growth. They may want to consider leveling up their underwriting strategies to attract more borrowers in these spaces. For example, using alternative credit data in addition to traditional credit data can help credit unions identify creditworthy consumers who may be overlooked by other lenders.”