How are Credit Scores Determined?

How are Credit Scores Determined?

It’s the time of year when credit unions see an increase in consumer lending. Members seek to secure home loans or financing for an automobile. That means two things are necessary. First, you are going to need compliant consumer lending and/or home equity lending forms. Oak Tree has forms to cover all lending and disclosure requirements to fund either loan type. Our home equity and consumer lending packages are customizable and contain all of the disclosure forms necessary to make the process as simple as possible. When your members ask “how are credit scores determined”, you should be prepared for some answers.

Secondly is a discussion about credit scores. They are perhaps the primary determining factor, and a proper understanding now can help your members secure the best financial opportunities later. Credit scores influence interest rates, loan amounts, collateral requirements, and ultimately whether or not to lend money to a borrower. Here is how they are determined:

Types of Credit. This is actually referring to the types of credit already used by a member and generates 10% of a member’s overall credit score. It’s comprehensive too, including things like a consumer’s mortgage, retail accounts, credit cards, and installment loans.

Amount Owed. This comprises 30% of an individual’s credit score. Things included here are items such as the total number of accounts (and their balances), how much of any credit line is used at any given time, and the ratio of installment amounts owed against the amount already paid.

Credit History Length. 15% of a consumer credit score comes from one simple factor: the amount of time an account has been active. Consumers with new accounts indicate more risk since they are considered new to the world of lending.

New Credit. This makes up 10% of an individual’s total score and accounts for how many credit accounts have been recently opened, and the total proportion of those accounts levied against things like recent inquiries, and any positive reestablishment of credit history if payment was a problem in the past.

Of course, anyone’s credit score will change over time, accurately reflecting current financial behavior. Negative information falls off after so many years regarding things like bankruptcy, lawsuits, or judgments. With all of these factors in the mix, it’s highly possible that an individual’s credit score will look different from one month to the next. This is good information to have on hand when it comes time to discuss lending with one of your members. Our lending forms packages can help you facilitate the process of underwriting to make it as simple as possible. The credit conversation, however, is up to you. It might be great to discuss the importance of credit scores beforehand with those members who are interested in consumer credit. News flash, Oak Tree can help you market those potential members. Contact us at MarketingServices@OakTreeBiz.com

This will allow them to make adjustments before they seek funding, and hopefully, improve their credit score. When the time comes for your members to start the process, you will be ready if you are an Oak Tree customer. They will too since you gave them all the information they needed to properly understand their credit score. If you need consumer lending, or home equity lending forms, contact us today. All of our forms are customized to your needs and can integrate with any data processor. We have you covered, so you can work with your members to improve their credit score so they get the best rates and terms available when it is time for them to borrow!

Oak Tree has been helping credit unions with their lending documents for over 37 years now.

Lending Checklist for Credit Unions

Lending Checklist for Credit Unions

Have you heard the good news? Credit union lending is on the rise. Starting in 2018, many credit unions outsold banks and it’s still going strong. That’s right. According to the latest Federal Reserve report, credit unions passed banks by securing more loans for credit cards and automobiles. That’s great news! In light of this, we thought it would be a good idea to walk through a lending checklist for credit unions with you. We know you’ll want to position yourself to take advantage of the momentum.

Lending Checklist for Credit Unions

🔲 Awareness.

Are your members aware of the different types of loans you offer? Each member has the potential to become a new loan customer. Make sure your staff is in tune with as many members as possible. Being aware of their financial situations will let you know which loan products to offer. Also, make sure you pitch mobile loan application processes, too. This may encourage shy members to initiate a loan, especially if they are unsure of their credit. They can always come in later to finish.

🔲 Forms.

Make sure you are using compliant forms. The National Credit Union Administration (NCUA) nor The Consumer Financial Protection Bureau (CFPB) take compliance lightly, and neither do we. We offer great consumer forms, as well as forms for home equity lending. We work hard to make sure our forms are compliant and accessible. Each package has several different delivery methods and will easily integrate with your data processor. The backbone of good lending is compliance. We have you covered there.

🔲 Marketing.

Do you have campaigns ready for each season? Do you know when to offer home equity products and when to pitch automobile loans? We have a fully-staffed marketing department that is ready to help you craft a targeted campaign that will deliver results. One phone call is all it takes to get started.

🔲 Member Checklist.

Leave it to us to have a checklist within an article about that very thing. Your staff also needs one for members, though. Nothing is more frustrating to a member than talking with a loan processor who is unprepared. Make sure your specialists have a reference list of specific items they will need from your member, according to which product they are applying for. Also, make sure to keep all necessary forms on hand in one easy-to-find place, so that starting the underwriting process is a breeze. 

Tick off the items on this checklist to prepare for the lending momentum heading your way. The ball is already in motion. To paraphrase a quote from one popular television show, “Spring is Coming.” Consumers will spend through spring and summer. There are several major holidays tucked in there, after all. Positioning yourself now will allow you to ride the wave later. Help your members’ accounts stay on a happy note. Do that, and their attitude towards your credit union will be the same!

Print Versus Digital Forms in Lending

Printable Versus Digital Forms: A Different Process for Each in the Loan Process

Credit Union Digital versus Printed forms for Lending

Credit unions today are all about options. Forms are no exception. While many use paper forms for the majority of their processing with no issues, digital forms can speed up the process by making it more efficient. Let’s highlight the differences by comparing print versus digital forms in lending.

Printed Forms Loan Process

• A member makes a loan request and is paired with a team member.
• The team member explains different options to the credit union member and provides them with a loan application to fill out.
• The member may fill out the application at the credit union or take it with them and return later with a completed application.
• From there, the loan is underwritten and funds are supplied for the member to make a purchase.

This is how many credit unions have approached consumer lending for years. However, with an increase in member growth via membership rule changes and mergers, many other credit unions use digital forms as an integral part of their process, because it streamlines efficiency. Take a look at the section below.

Digital Forms Loan Process

• Forms are stored online. A member may either make an inquiry in-person to a team member or inquire online.
• If a team member is asked, they will point the client to the loan section of the credit union’s website.
• The member accesses the form online and provides the necessary information.
• A team member follows up with the credit union member for processing and approval.

Indirect Benefits of Digital Forms

Clearly, digital forms are more efficient. They save time since credit union staff can point members to their website to fill out forms for pre-approval. A follow-up can be scheduled for a time that is convenient. Digital forms are productivity producers. Also, since the process is more streamlined, the potential for servicing more loans is very real. Digital forms can provide an indirect increase in lending growth simply because credit union staff have the capacity to serve more members.

The key is being able to market the service tactfully. Some members may feel like they are being discounted when asked to fill out a loan application online. Disabled members may also prefer print documents to digital documents. According to the National Federation of the Blind, an estimate of as many as 10 million Americans are blind or visually impaired, such as having difficulty reading or are unable to read letters in regular print, even while wearing ordinary glasses. It’s all a matter of perspective, though. The fine line is the difference between shuffling a member over to an online portal versus presenting them with an easy-to-use online loan application process they can complete in their spare time.

Of course, there will always be those individuals who prefer printed forms to digital forms, and vice versa. That’s why we provide compliant options for both. We work with any data processor and insurance carrier nationwide. If you have a question about how digital forms can streamline your lending process, we can help. Print versus digital forms in lending seems pretty clear cut, but you always have to look at your credit union’s situation for any particulars.

Email clientservices@oaktreebiz.com for more information. We have almost 40 years of industry experience and are ready to put it to work for you.

5 Reasons Credit Union Lending Beats the Bank

5 Reasons Credit Union Lending Beats the Bank

The next time one of your members thinks about getting a loan to make home repairs, finance a new home, or purchase a vehicle, use the five tips below to help the member choose you as a lending option. People often operate under the assumption that a bank is the only place that can serve their lending needs. It might be time for you to shine a little light on the subject for the potential borrower. Listed below are our 5 reasons credit union lending beats the bank for lending.

5 Reasons Credit Union Lending Will Beat a Bank Every Time

1. Higher Approval Rates If your member’s credit is stained, dirty, or needs a bit of repair, your credit union is much more likely to be accommodating than a bank. Though the loan terms and processes are very similar, credit unions are known for listening to their members’ needs. Credit unions are most likely to understand that unique situations occur, and will work toward loan approvals. They will even adjust loan terms accordingly in some instances. Book any type of loan when you use Oak Tree forms.

2. Better Rates To explore this, let’s look at vehicle loans. Typically, most of us will secure a five-year loan for a vehicle. The rate at the credit union will be much lower than the interest rate at a traditional bank. It may only look like a 1% difference, but that 1% can add up to thousands of dollars put back into your member’s pocket during the life of the loan. Oak Tree forms stay on top of state and federal compliance laws and their ongoing changes, which supports low-interest rate loans.

3. Better Services Since credit unions are classified as nonprofit, they don’t answer to a shareholder board. Operation decisions are usually made by a volunteer board, rather than corporate office appointees. To that end, members feel much more comfortable talking to their credit union about payment options and services. It is much easier to talk to someone when you feel like they genuinely have your best interest at heart. In addition, Oak Tree seamlessly integrates your credit union forms into your data processing system with Data Linking, allowing for faster loan processing, and saving your members time.

4. Educational Resources Your credit union may have a resource center, which serves to educate your members on different finance options, financial products, and bank accounts they may have. Utilizing this resource can aid members in making a decision that best suits their needs when it comes time to secure a loan or otherwise. In addition, your credit union will probably go the extra mile, being a member-driven financial service institution. For instance, the credit union may determine the value of a vehicle so the member feels good about the loan before applying. Since the credit union is nonprofit, their answers are unbiased, so members know the credit union is not trying to inflate or deflate the value of the vehicle to stick them with a higher-rate loan. Oak Tree also offers training so your credit union staff is ready to use our forms and help members obtain the best loan.

5. No Selling Since they are nonprofit, credit unions essentially work for you. There is no incentive for them to sell you any new product or service. All profits generated by the credit unions go back to members, showing up in lower interest rates or new financial products, like different savings account loan options. This makes it easy to find a credit union that meets your needs. This, in addition to a faster loan processor, will lead to word of mouth from happy members.

Now you can put a bug in your member’s ear so to speak, the next time the subject of lending comes up. Use these 5 tips to promote yourself. Of course, Oak Tree will stand ready as your forms provider. The friendly, consistent, and trustworthy nature of your credit union, coupled with our compliant lending forms, will ensure that your members have a great borrowing experience. Members will be glad they made the switch!

Credit Scores Matter to Your Members

Credit Scores Matter to Your Members

Your members may be wondering, along with thousands of others, if their credit score really matters. And if so, how much does it matter? A credit score will dictate a lot of their future when it comes to major purchases. Such as applying to get a home loan, an auto loan, or even a credit card for large purchases. An individual actually has multiple scores reported by different credit bureaus, and those scores change all the time. It is important for you to know how the credit scores matter to your members at your credit union.

How Credit Scores Work

There are five main factors that make up a person’s credit score. Some of these factors prove more valuable than others. They include amounts owed, new credit, length of credit history, payment history, and credit mix. Lenders, like your credit union, rely on credit scores to help them determine who is considered a “high-risk” borrower and who may be considered a “low-risk” borrower. Credit scores range between 300 and 850. As mentioned, your members may have multiple credit scores, and each score is based on similar factors, but usually will not be identical. Scores also tend to fall within different ranges, as well as numbers (fair, good, or excellent).

Why Your Members Credit Score Matters

Having a “good” credit score will benefit them when making larger purchases as they move forward in life. When they have a higher score it will usually ensure they receive better deals, and rates when it comes to loans, apartments, credit cards, and even cell phone plans. Having a lower score will result in paying higher interest rates, or having your application ultimately rejected. Credit scores have proven to be an integral part of our financial lives, so making sure they are checked regularly, and understanding what affects their score will be an important part of their financial journey.

Growing Your Credit Score

As your members understand a little more about the importance of maintaining a healthy credit score, we want to provide some guidance for your members to continue to grow credit and remain on track.

• Try to avoid closing any accounts, even if paid off.
• Pay balances in full and if you must keep a higher balance, try to pay it down as quickly as possible.
• Regular but light use of your credit cards, while keeping your balances below 30% of your given credit limit.
• Paying your bills on time, of course!
• Setting up auto-pay to ensure no payment is ever missed.
• Now, TAKE ADVANTAGE OF YOUR DEMOGRAPHICS AND SUPPORT THEIR GOOD CREDIT WITH GREAT LOAN RATES!

Here at Oak Tree, we understand the importance of making sure your CU members are getting the best rates, and that you are getting the best forms to conduct business. With 37+ years of experience in the Credit Union Industry, you can count on us to make sure your forms are compliant and held to the highest standards. Contact us today to learn how we can help!

ITIN Lending & Compliance

Cutting Through the Fog

In a Credit Union Times Expert Opinion Column, “ITIN Lending & Compliance: Cutting Through the Fog,” Oak Tree`s CEO talks about ITIN lending, and how it represents growth opportunities for credit unions. Here is an excerpt from the article about ITIN Lending & Compliance:

” ITIN lending represents a solid marketing demographic for credit unions. Is your credit union taking full advantage of it? If not, you should be. Here’s why. The Filene Research Institute recently concluded its incubator loan project in December 2017, with ITIN lending being the most popular segment of the experiment.

The program introduced the following five loan packages to immigrants/minorities:

• Automobile refinance loans
• QCash small-dollar loans
• Micro-finance small business loans (community-based)
• Payday payoff installment loans
• ITIN lending

To make these loans possible, credit unions used targeted data mining and alternative relationship factors in addition to credit scores, alternative data, and ITIN numbers rather than Social Security numbers as a basis for identification. And while this segment does carry risk, it can be measured. Plus, the numbers speak for themselves.”

To continue reading about ITIN Lending & Compliance, head over to Credit Union Times website HERE.

Oak Tree has been a leading provider of credit union forms and disclosures for over 37 years. Contact us for information regarding our forms or marketing services.

Changes to Interest Rates and Forms in 2018

Changes to Interest Rates and Forms in 2018 for Credit Unions

In a commentary article posted on Credit Union Times our CEO, Richard Gallagher discusses how the Fed has made its resolution clear to increase rates. Are your forms prepared to handle it? Changes to interest rates and forms in 2018 are guaranteed, make sure your credit union is prepared for these changes. In the new year, interest rates are predicted to hike at least twice, each time your forms must undergo changes.

New business tax cuts, a new Federal Reserve chair, and low inflation set the stage for interest rate hikes going into 2018. Speculation projected three hikes last year, but only two occurred. This was no surprise to industry experts who surmised a third-rate hike would be unlikely because the economy was not in a position to support one. Most of the tax cuts set forth in President Trump’s tax plan would not take effect until 2018 and would affect businesses more so than consumers. Plus, inflation was a market factor and growth seemed to be slower than expected.

How Much the New Tax Cuts Will Affect Rate Hikes

Well, it is now 2018 and the tax plan just went into effect. Businesses are positioning themselves to take full advantage of their tax rate plummeting from 35% to 21%. That’s good news for them. It’s good news for the Feds too. The potential for interest rate hikes has directly increased as a result. Toward the end of 2017, many investors thought there might be only two hikes in 2018 because of inflation. The attitude of the markets certainly seemed to be positioned that way, and who could blame them? Sluggish inflation coupled with a sluggish growth rate usually means interest rates will remain the same.

Richard Gallagher

To read more about how your credit union can prepare for the changes to interest rates and forms in 2018, go check out the CU Times article and then check out our lending documents for your credit union.

_{(note: this is an older blog entry and has been edited since originally posted.)}

Mobile Banking Optimal for Lending Growth

Mobile Banking is Optimal for Lending Growth

In a commentary article posted on Credit Union Times our CEO, Richard Gallagher, discusses how mobile banking optimal for lending growth at credit unions is so important. A crucial topic as credit unions seeks to connect with Millenials.

Mobile banking allows credit unions to compete with larger financial institutions. It gives them a competitive edge and greater flexibility. It is also great for lending growth. A study by the Federal Reserve reported that “67% of millennials now use mobile banking, compared to 18% of consumers age 60 or over. This usage gap is projected to widen even more, as 85 million millennials, prone to using their mobile devices for banking, are coming of age.” This translates directly into an increase in lending growth. Here’s why.

Lending Growth and Mobile Banking

One of the greatest assets of mobile banking is 24/7 access. Members can check loan balances at any time, just as they would their checking or savings accounts. They may also have access to other crucial pieces of information, such as principal balance and next payment due date. All of this serves to increase lending growth, as consumers are constantly looking for efficient ways to manage their financial lives.

Richard Gallagher

To read more about how your credit union can increase its lending growth opportunities go check out the CU Times article and then check out our lending documents for your credit union.

_{(note: this is an older blog entry and has been edited since originally posted.)}

MLA Changes & Their Effect on Credit Unions

MLA Changes & Their Effect on Credit Unions

Last year’s revisions to the Military Lending Act (MLA) regulations have generated quite a bit of buzz in recent days. You might be wondering how these changes will affect your forms, and what action you need to take. The good news is that if you are currently using Oak Tree forms for the types of credit that will be covered by the MLA, then your current forms are compliant, despite the revisions made to the MLA. It is important to be aware of the MLA changes & their effect on credit unions if you are running a credit union.

When the United States Department of Defense (DoD) revised their MLA regulations, they expanded the protections provided to active-duty service members and their families under the Military Lending Act (MLA). For the first time, loan products of the type normally offered by credit unions and other depository institutions are covered by the MLA regulations. While the new requirements took effect October 1, 2015, the mandatory compliance date is October 3, 2016 (and not until October 3, 2017 – and possibly later – for credit card accounts).

What is the MLA?

The current MLA regulations were issued in 2007 and were designed to protect active-duty members and their families (“Covered Borrowers”) from the most egregious forms of predatory lending. Whether a person is a Covered Borrower is determined by a service member’s active-duty military status. The MLA protections presently apply only to credit extended to service members and their immediate family members while the service member is on active duty and focus exclusively on: (i) payday loans of $2,000 or less with terms of 91 days or less; (ii) vehicle title loans (non-purchase money loans with terms of 181 days or less secured by a motor vehicle’s title); and (iii) tax refund anticipation loans. These loans are referred to as “Consumer Credit” transactions under current MLA regulations.

The MLA regulations limit the amount that a lender may charge a Covered Borrower for a Consumer Credit transaction. This limitation comes in the form of the unique “Military Annual Percentage Rate” (MAPR). Creditors are prohibited from charging an MAPR that exceeds thirty-six percent (36.0%).

When current regulations proved less than effective at curbing lending abuses, the DoD changed its strategy by expanding the scope of what constitutes a Consumer Credit transaction. Instead of targeting specific loan products, the revised MLA regulations now specify that all consumer loans subject to Regulation Z (both closed-end and open-end) would be covered, with limited exceptions granted for certain types of “mainstream” consumer loans. Under the new rules, only the following credit transactions are not subject to the MLA regulations (and thus, are not “Consumer Credit” transactions for purposes of the amended MLA regulations):

• Dwelling-secured loans, including loans to finance the purchase or initial construction of the dwelling, refinance transactions, home equity loans, home equity lines of credit, and reverse mortgages;
• Loans to finance the purchase of a motor vehicle when the loan is secured by that vehicle; and
• Loans to finance the purchase of other types of personal property when the loan is secured by that property.

For most types of Consumer Credit, only those transactions or accounts consummated or established on and after October 3, 2016, will be subject to the new requirements. For open-end (not home-secured) credit card accounts, only those accounts established on or after October 3, 2017, will have to comply with the MLA. The current requirements will remain in effect for affected closed-end credit products until October 3, 2016.

Under the new MLA regulations, a creditor is not required to disclose the MAPR as a numerical value (which is a requirement under the 2007 regulations), but is required to provide “a statement of the MAPR applicable to the extension of credit” (a text explanation of the MAPR rules). A Model Statement that may be provided to satisfy the MAPR disclosure requirements is provided in the new regulations and is currently available through Oak Tree. This disclosure must be provided both orally and in writing.

The 36.00% MAPR limitation remains, but will soon apply to both open-end credit and closed-end credit. For open-end credit accounts, the MAPR limitations are imposed on each billing cycle. Creditors may not impose fees and charges during a billing cycle if those fees and charges would result in the MAPR for that billing cycle exceeding 36.00%.

The new regulations contain essentially the same limitations on loan practices and the same administrative penalties that are provided in the 2007 regulations, but, because of Congressional amendments to the MLA in 2013, including civil liability provisions for the first time. Violations of the MLA and DoD regulations will now subject creditors to civil liability for actual damages (not less than $500 per violation), punitive damages, and equitable relief, among other provisions.

Credit Union Forms Requirements

Because of the significant civil liability provisions, credit unions must familiarize themselves with the requirements of the MLA and DoD regulations as revised, to ensure compliance by the effective dates. The MAPR limitations must be taken into account when credit is furnished to Covered Borrowers in order to avoid this potentially costly civil liability. It is strongly recommended that an MLA due diligence process be incorporated into application procedures in order to take advantage of certain safe harbor provisions contained in the new regulations.

How Does This Impact Your Forms?

Here is where the good news comes in. Although the credit union’s consumer lending operations are clearly affected by the new requirements, your forms remain compliant. Again, Oak Tree’s counsel has advised that Oak Tree’s current forms will not require revisions. The reason for this? Chat with us to find out why.

(note: this is an older blog entry and has been edited since originally posted.)

New Military Lending Act Regulations

New Military Lending Act Regulations Recent Changes Regarding Military Lending At Oak Tree Business Systems, Inc., we pride ourselves in maintaining forms that are up to date and compliant across all federal and state guidelines. Well, it is time for us to “up the ante” with this latest regulatory change. Protections have been expanded for active-duty service members and their families according to the revised regulations of the Military Lending Act. Now, loan products offered by credit unions and other depository institutions are covered by these regulations. The new requirements will take effect on October 1 of this year. The mandatory compliance date is October 3, 2016 (and not until October 3 of the following year, and possibly later for credit card accounts).

Why Did The Regulations Change?

The reason for the regulatory change has to do with why the MLA was enacted, to begin with. In 2006, Congress discovered that most active-duty members often looked to subprime lending sources to help them get relief during a financial crisis. Even though the loan provided short-term relief, the high-interest costs associated with carrying the new loan would throw these families into a cycle of unsustainable debt. This added to the stress that service members already feel in general, and this added stress would trickle down to their spouses and children. Therefore,  the MLA was established in 2007 to protect service members from predatory lending. The act was specific in that it only applies to active-duty members, and focuses on the following:

• Payday loans of under $2000 with terms of 91 days or fewer
• Non-purchase money loans with terms of 181 days or fewer secured by a motor vehicle title
• Tax refund anticipation loans

The MLA protects the consumer by limiting the interest amount that an institution may charge for these services. This limitation comes in the form of what is known as a Military Annual Percentage Rate, or MAPR. Creditors may not charge more than 36% MAPR. This differs from APR significantly, because finance charges normally excluded under Regulation Z are included under MAPR. The New Changes The new regulation changes extend to all consumer loans, not just short-term payday or tax refund anticipation loans. Under the new rules, the only types of transactions not subject to MLA regulations are:

• Dwelling secured loans, including loans to finance the purchase or initial construction of the dwelling, refinance transactions, home equity loans, home equity lines of credit, and first mortgages
• Loans to finance the purchase of a motor vehicle when the loan is secured by the vehicle
• Loans to finance the purchase of other types of personal property when the loan is secured by the property

So, What Does This Mean?

Essentially, it means that all of your forms must be updated to reflect the new changes, and kept up to date as each phase-in level date is established. You must be familiar with the new regulations to make sure that they are reflected in all of your applicable lending forms. Oak Tree Business Systems, Inc. will do just that. We will make sure that all of your lending forms are correct, include appropriate verbiage, and accurate, up-to-date MAPR so they are in compliance. Oak Tree is a leader in the industry with a proven track record of producing a compliant product every time. Give us a call if you have any questions regarding your forms, or if you are wondering how the new MLA regulations will affect your institution.

(note: this is an older blog entry and has been edited since originally posted.)