How economic shifts impact credit unions and American consumers

credit unions

Credit Unions have seen a surge in growth towards the end of 2022, marked by increased memberships and rising interest rates.

According to Cognitive View, the sector, having thrived since 2019 due to enhanced consumer borrowing alongside rising interest rates, faced a setback in 2020 with the advent of COVID-19, leading to decreased demand and a dip in industry growth.

The Credit Unions industry in the US is influenced by various factors, including Aggregate household debt, the House price index, the Prime rate, and New car sales. The affordability of financial service products remains critical, especially for those unbanked or underbanked, and those with invisible or impaired credit histories.

With the U.S. Bureau of Labor Statistics reporting a 3.7% increase in the Consumer Price Index, there’s a noticeable rise in costs for essentials like gas and housing. Concurrently, the Federal Reserve’s persistence with higher federal funds rates is likely to escalate the cost of credit.

An increase in membership and engagement with credit unions is evident. Members are not only joining in greater numbers but are also actively investing, leading to higher account balances. This trend is expected to continue, reflecting a growing trust in credit unions.

Amidst global inflation, the Federal Reserve is poised to keep increasing interest rates. Typically, higher interest rates would lead to reduced debt, but the current economic strain is pushing households towards increasing their debts, adding to financial volatility.

The industry is undergoing consolidation, evidenced by a decline in the number of federally insured credit unions. This trend aligns with long-standing industry dynamics.

A significant portion of credit unions are small entities, as defined by the National Credit Union Association. This categorization often applies to credit unions with assets under $100.0m.

There’s an uptick in delinquency rates across various loan types, including non-commercial real estate loans, credit card, and auto loans, signifying potential financial stress within the sector.

The Consumer Financial Protection Bureau (CFPB) is intensifying its enforcement efforts, planning to expand its attorney workforce significantly. This reflects the Bureau’s commitment to its Supervision, Enforcement & Fair Lending Division.

The National Credit Union Administration (NCUA) plays a crucial role in regulating and supervising federal credit unions. Its 2023 Supervisory Priorities highlight a continued focus on compliance with consumer financial protection laws, including scrutinizing overdraft programs and fair lending practices.

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