In a new report Serving the Credit-Invisible, the National Credit Union Administration (NCUA) describes how credit unions can serve people with no or thin credit histories.
“Credit-invisibles” are consumers whose documented credit history is so limited that they don’t have credit scores or their credit scores are not based on a complete history of debt repayment. The Consumer Financial Protection Bureau estimates that 26 million U.S. adults have no credit history with the three national credit bureaus -- TransUnion, Experian, and Equifax.
NCUA notes that if a credit union is going to develop a loan program to serve the credit-invisibles, the credit union will need to put in place stronger loan review processes to properly assess the creditworthiness of an applicant. Factors that may go into the loan underwriting decision may include stability of residency; length of employment; employment income; past judgments, bankruptcies or charge-offs; current debts and payment amounts; and more.
NCUA advises that the loan application must provide enough detail for the underwriter to properly assess the risk of non-payment. In addition, potential credit-invisible borrowers should be interviewed before the credit decision is made.
The credit union will need to have appropriate monitoring and control mechanisms, due to the increased risk of default with credit-invisibles.
For example, NCUA states that a collection program must be established before implementing the credit-invisible loan program. NCUA recommends credit-invisible collection practices should aggressively pursue missed payments. Also, to assist in the collection process, credit unions should consider loss-protection insurance and GAP insurance to protect the credit union against losses.
If an auto loan is made to these individuals, NCUA recommends installing a global positioning system to help with collection efforts.
Of course, the agency advises that the credit union consult with legal counsel before implementing any collection program to ensure that the program complies with state and federal laws.
Another STUpid idea brought to you by the NCUA. A global positioning GPS device on the car. When it is in default the credit union trips the kill switch. So the woman now has to walk through the Ghetto to get home. She is raped and killed. WHY? Because the credit union put the kill switch on her car. What a great idea. Can I buy a dozen of these devices? Will the NCUA provide the legal defense?
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