Members Respond to Flexibility of Debt Cancellation

Tom Munley, CUNA Mutual Group
June 23, 2005

United Teletech Federal Credit Union introduced debt cancellation in the last quarter of 2004, and members are responding. In the last three months of the year, debt cancellation penetration of new loans was 20%. Compare that with a 1.6% credit life/credit disability participation rate in the previous 12 months, and you can see that debt cancellation is a hit with United Teletech members.

Members can choose from six debt cancellation packages—life, disability, life and disability, life and involuntary unemployment, disability and involuntary unemployment, and all coverages. Through the end of the year, the comprehensive package was tops in popularity, making up 31% of debt cancellation loans.

Credit Union Offers Options

The credit union wanted the flexibility to choose loan protection features, and to offer several options to members, according to Bob Flanyak, vice president, retail delivery at the Tinton Falls, New Jersey, credit union ($274 million assets; 24,951 members). Many of United Teletech's members are employed in the telecommunications industry, which continues to go through many changes.

Debt cancellation is a loan product, a two-party agreement between the credit union and the member. The member pays a fee that provides protection in case certain events occur, such as death, disability, involuntary unemployment or call to active military duty. If such an event occurs, the lender cancels, defers, or suspends all or part of the debt. The credit union designs its own program, choosing which events to cover, and whether to offer cancellation or postponement.

Flanyak says he and United Teletech President Leo Ardine like the breadth of coverage that debt cancellation can offer. The credit union chose to include involuntary unemployment, for example, because about 60% of members are employed by telecommunications companies. They know about layoffs and downsizings in that industry.

Plus, since 1995, United Teletech has added 318 select employee groups. "Many of these members work for smaller companies and if they get laid off, they don't have long-lasting benefits," says Flanyak. He predicts that when United Teletech converts to a community charter this spring, the debt cancellation products will be well-positioned and have a strong appeal to an even wider range of members.

Crucial to Competing

A quarter of United Teletech's households earn more than $100,000 per year, so "we have a lot of competition for our members," says Flanyak. As United Teletech broadens its member base, he knows that satisfying the financial needs of a wide-ranging member base is crucial to the credit union's success.

"With debt cancellation, we pick how we build each option and how it's priced," says Flanyak. "We have an incredible amount of flexibility."

Tom Munley is a member services account vice president with CUNA Mutual Group in Middletown, Delaware. This story first appeared in CUNA Mutual Group’s online publication called Added Dimensions at http://www.cunamutual.com/cmg/addedDimensions/ home/0,1775,9057,00.htmland is reprinted with permission.