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CCR2 Affordability Assessments & Vulnerability

Automated loan decisions for credit unions and consumers

Automated decisioning is helping credit unions to make risk and affordability decisions, in the face of increased demand

Mark Lyonette Chief executive, the Association of British Credit Unions

Britain’s credit unions have enjoyed a period of considerable growth over the last decade. Membership has doubled to 1.27 million and lending has doubled to more than £788m, while the last 10 years have seen a trebling of deposits to more than £1.2bn and assets to over £1.4bn.

New challenges

Rapid growth, of course, brings its own range of challenges. When added to the modern consumer appetite for financial services to be instantly available on the move via smartphones and tablets, it had become clear that credit unions needed to update and modernise their approach to lending, to remain relevant and vital to their members. Working together, in the best tradition of the co-operative movement, more than 60 credit unions worked with our subsidiary Cornerstone Mutual Services to develop an automated lending decisions (ALD) programme. This technology allows credit unions, of all sizes, to benefit from the type of sophisticated technology and industry- wide data used by banks to inform their lending decisions.

But this is much more than an off-the-shelf tool. The credit unions developing ALD were insistent that it should be a unique credit-union solution which is true to the movement’s values and objects. So the ALD includes a loan applicant’s credit-union history in its credit checking, which means someone who has been saving regularly, and has accessed and repaid small- sum loans from their credit union, will get recognition for this, and it will strengthen their credit history – not only for credit- union loan applications.

32 March 2017 Access to finance

Today, this is helping many thousands of people, who have historically struggled to access mainstream financial services, to access better rates on borrowing and to get identified for online services that require a credit history.

Through the system, each credit union is able to set their own thresholds for ‘yes’ and

‘no’ decisions, with those in between referred for a manual decision.

In this way, the precious credit-union difference is maintained, where a credit union might, potentially, be able to say ‘yes’ to a borrower who has alread been rejected elsewhere.

Someone who has been saving regularly, and has accessed and repaid small-sum loans from their credit union, will get recognition for this, and it will strengthen their credit history

So the ALD is good news for consumers, and it is great news for credit unions too. Collectively, credit unions using the ALD have grown their loan book more quickly than the rest of the sector, whilst, at the same time, reducing bad debt to below the sector average.

ALD became possible because of support from the Santander Foundation, the Department for Work and Pensions’ Credit Union Expansion Project, and payments from the credit unions that are developing and using it.

It is now available to any credit union in Britain that wishes to adopt it as a sustainable service. CCR2

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