The Fed’s inflation-fighting campaign that’s been driven by job reports shows signs of slowing down. Yet – in the face of persistent inflation, companies are thinning out labor.
Unemployment crouched at 3.9% at the end of Q3 but the headlines instill panic.[1] The prospect of unemployment is more real and unsettling than ever. Losing a job is one of the most stressful events in a person’s life, categorized by the APA as both financial and psychological trauma.[2]
Unemployment is bad news for Americans - especially the 60% that live paycheck to paycheck.
About two-thirds of Americans live paycheck to paycheck, so when job cuts, borrowers face serious financial difficulty with no warning. Debt and unemployment do not bode well for peace of mind - or maintaining strong credit health.
While some unemployment situations may be voluntary (due to needing to take care of aging parents or young children), involuntary, unexpected unemployment creates a true income crisis for families.
Soothing an Income Crisis
Here are three considerations for financial institutions who want to protect their borrowers - and their portfolio - when involuntary unemployment strikes.
- Safeguard borrowers’ finances - and credit health.
First off and most importantly, financial institutions need to realize that they can help their borrowers’ financial lives during a crisis. When a borrower loses their job by no fault of their own, Credit Involuntary Unemployment (IUI) coverage can step in to continue making payments on the loan for up to 12 months, protecting their credit score the entire time the product is in effect.[3] This safety net gives borrowers the option to use savings for day-to-day expenses instead of debt.
Eligibility is simple and straightforward. This coverage is ideal for those with higher monthly payments, and with the present interest rates, that’s most borrowers. With the average used car payment of $528.00 (including a 11.38% interest rate) any lapse of income can escalate into a financial crisis for a borrower.[4]
Credit IUI monthly outstanding balance is designed to insure closed-end and open‑end consumer loans with a monthly payment. When involuntary unemployment occurs, up to 12 months of benefits will be paid, subject to policy provisions. - Generate non interest income while shrinking losses
As deposit growth and originations continue to be areas of concern for financial institutions, generating non-interest income is a priority for countless financial institutions. The fee revenue from an insurance product like IUI generates additional strength for the balance sheet.
The biggest win may be when the coverage is enacted: Because the coverage keeps the borrower’s loan current, financial institutions see less defaults. Offering this product to borrowers is beneficially at the loan signing and can safeguard against future losses.
Dave Siedel, Vice President, Head of U.S. Affinity Solutions at Securian Financial, says, “In a challenging lending environment, Credit IUI is mutually beneficial for both the borrower and financial institution.” - Maintain compliance with UDAAP
The CFPB is paying close attention to credit and non-credit products, ensuring that these coverages do not fall into “unfair, deceptive acts and practices”. Financial institutions must consider these compliance concerns.
Partnering with a compliance-centric organization, like Securian, for offering a credit product is a proactive, accountable approach to compliance for financial products.
The labor market is proving resilient - borrowers' budgets may not be. Job and payroll reports show signs of growth, but there is still a risk that borrowers may lose their jobs.
Offering involuntary unemployment insurance can help your borrowers cover expenses, protect their credit rating, and reduce financial stress. While the economy, consumer confidence, and job market remain shaky, why not take every opportunity to strengthen relationships with borrowers?
Securian Financial is a Champion partner with Allied Solutions.
About Securian Financial
At Securian Financial, we're here for family. And we're here because of it. We're guided by our purpose: helping customers build secure tomorrows. Since 1880, we've been building a uniquely diversified company that has outlasted economic ups and downs while staying true to our customers. We're committed to the markets we serve, providing insurance, investment and retirement solutions that give families the confidence to focus on what's truly valuable: banking memories with those who matter most.
[1] https://www.bls.gov/
[2] https://www.apa.org/monitor/2020/10/toll-job-loss
[3] https://www.alliedsolutions.net/solutions/enhance-revenue/involuntary-unemployment-insurance/
[4] https://www.experian.com/automotive/automotive-credit-webinar