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Banks, credit unions seek to mitigate credit risk

Apr 01, 2014 Walt Wojciechowski

Banks, credit unions seek to mitigate credit risk

Amid alternative credit data and new IT innovations, monetary organizations throughout the United States are reassessing their risk management procedures. Expressing interest in obtaining younger customers, a number of these companies are venturing into industries that may pose new obstacles but yield significant returns.

According to National Mortgage Professional, Wolters Kluwer Financial Services recently released the results of its Regulatory and Risk Management Indicator for the U.S. banking industry. The organization surveyed approximately 400 financial institutions and used 10 factors, seven of which consist of direct input from banks and credit unions regarding their compliance and risk management concerns. The other three are based on commercial credit reports compiled by Wolters Kluwer.

Results of the study showed that many of those surveyed are greatly concerned with the Consumer Financial Protection Bureau's refined mortgaging service requirements and guidelines. In regard to risk management, the majority of institutions expressed concerns over asset and liability administration, as well consumer credit data fraud.

"Not only are these institutions more concerned about compliance and risk management, but they're also devoting additional time and resources to addressing these areas to head off potential issues, and facilitate growth and performance objectives," said Timothy Burniston, vice president and senior director of Wolters Kluwer.

Credit unions extend their reach

Boston Globe contributor Deirdre Fernandes noted that a large number of credit unions in Massachusetts are rapidly expanding private student loan sales. She wrote that many of these member-owned institutions are doing so due to a desire for younger customers and higher returns.

In contrast, many banks have abandoned the practice, claiming that exercising debt collection over students is a practice they're unwilling to partake in. In addition, the risks involved in lending money to graduates entering a lackluster job market may not be worth the cost. Organizations such as the National Credit Union Administration have warned these new participants to assess implementation before issuing unsecured allowances.

Contending this apprehension are the lenders themselves, claiming that they're offering an option that's more flexible than federal loans. Though the latter investment typically carries lower interest rates than the private solution, critics have claimed public accommodation is insufficient for most families to cover tuition costs.

"It's been a great opportunity for our credit union and our members," said John LaHair, a spokesman for Digital Federal Credit Union in Marlborough, as quoted by the news source. "It has opened the doors for people who may not have known about it."