2. High Rate Lending • Why Offer • Benefits • How to Implement • GPS Lending to Higher Risk Members • Monitoring the Risk

3. Why Offer • Some members with sub 640 credit scores are very safe to loan to • Those with low beacon due to medical judgment, an older missed payment, fraud, being new to the workforce, younger, lack of recent activity • Many times these lower score members are safer than members with 600-660 beacon scores who previously were 740+

4. Benefits • More loan interest = more profits • An 18% loan to a person with a 613 credit score provides 6x the loan revenue as a 3% loan to an A+ member • More Profits = • Higher dividends, salaries, marketing budget • More services, products, resources • All these lead back to increased LOAN growth • These loans will always be above CD rates • Strengthens Member Relationships – More loans in the future to same members as you’ve helped when no one else would • Helps fulfill the Credit Union industry mission of serving the underserved

5. GPS Lending to Higher Risk Members • Culture • Pricing/Incentives • Marketing • Creativity • Continuous Monitoring

6. How to Implement cont. • Culture • Loan departments realize they need C, D, & E borrowers to increase net interest margin • A credit score ≠ persons worth • Understand you have to closely look at the reasons for the lower score such as time at job, amount of trade lines, and timing of any negative information • Determine the right term and the right amount • Minimize the downside (loan to value, direct deposit, etc)

7. How to Implement cont. • Pricing/Incentives • Align reward and risk • Align the interest rate the Credit Union receives with the amount of risk it is taking by loaning to certain credit tiers • D & E credit tiers typically fall within a 15 – 18% rate to offset risk exposure the Credit Union is taking on • If using indirect, consider paying a higher dealer incentive for B & C loans than A & A+

8. How to Implement cont. • Marketing • Similar to younger adults who use non-traditional media • Local sale papers (Penny Saver, Apartment Guides, etc) • Radio • Social Media such as Facebook, Twitter, or your CU Website • Word of mouth – people tend to spend time with like minded persons • Used Auto Dealers will push these people to you since they can’t get them financed elsewhere

9. How to Implement cont. • Creativity • Rate Reduction – May consider a rate reduction for each year or six months the member has 0 late payments • Incorporate with a Credit Builder Program • Helps in selling Credit Union Repos faster as most purchasers don’t have the best credit

10. How to Implement cont. • Continuous Monitoring • GPS Tracking and starter disabling devices • 60+ day delinquency report comparing it to prior month, quarter, and year looking at trends • Always working a 10 – 60 day delinquency report • Slice up info based on credit tier and product to look at charge off percentage and delinquency per dealer for indirect lending • Monitoring loan revenue by credit tier (gross and net after charge offs)

11. Q & A