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Buy Now… Pay Later?: Clarkson's Larry Compeau Gets Grant To Study Credit Union Counseling Programs
These are economic times of plenty. Consumer confidence is up, unemployment is down and many Americans are in a buying mood, borrowing money from banks to purchase that house or car they always wanted. The holidays saw a crush at the malls and heavy traffic on-line-- purchases galore bought with the power of plastic. Buy now, pay later-- times are good.
But, like anything else done in excess, buying sprees can have a costly effect. Later comes sooner than expected, and it’s time to pay up. But the money isn’t there, so some bills aren’t paid on time, and some aren’t paid at all. Result: a damaged credit history, making it difficult to buy a car or rent an apartment. And not all damaged credit is caused by overspending. Uncovered medical expenses, layoffs and unexpected expenses can also lead to credit problems.
To help set things right, many credit unions are now offering financial counseling at their institutions.
Larry D. Compeau of Canton, associate professor of marketing and director of Undergraduate Programs at the Clarkson University School of Business, has been studying the effects these programs have in getting consumers back on track.
Compeau was recently awarded a $15,000 grant from the Center for Credit Union Research at the Filene Institute at the University of Wisconsin to study financial counseling programs at credit unions. The Filene Institute encourages leading scholars and researchers to analyze managerial and public policy problems and opportunities.
“The grant will fund research that will use in-depth interviews to capture the significance and meaning of consumers experiences as they progressed from bad credit to good credit as part of a financial counseling program,” said Compeau.
As part of the grant, Compeau was invited to a University of Virginia colloquium to present his paper, “Successful Turnarounds From Bad Credit to Good: The Borrowers’ Experiences,” which contained preliminary results of the research funded by this grant. More than 40 CEOs from some of the largest credit unions in the country attended the colloquium to hear Compeau’s findings. Final results of the research will be published in a monograph.
Compeau’s findings will be of great interest to credit unions as they seek to identify a stronger marketing niche for their services. Although there are more than 12,000 credit unions in the U.S. that control over $300 billion in assets and have 67 million members, competition for every consumer dollar is heating up.
Non-bank institutions are competing for the same customers and traditional banks are expanding their services. The traditional credit union approach of providing a narrow product line to a small target market is becoming harder to maintain. Thus, credit unions are looking for ways to stand out in an increasingly competitive field.
One approach is risk-based pricing where consumers with bad credit are enrolled in a financial counseling program provided by the credit union. The program teaches consumers how to better manage their finances and attempts to change behaviors that generally lead to bad credit and bankruptcies. The program then allows consumers to reestablish a good credit history, and build a financial portfolio with the credit union, which is also financially rewarding to the credit union.
Not all programs, however, are successful. Compeau’s research will help identify the components of successful programs.