Lending and Credit Administration
Lending is the primary source of credit union income and risk. Candidates must understand the five Cs of credit - character, capacity, capital, collateral, and conditions - and how underwriting applies them. Capacity (ability to repay from income) is usually the strongest predictor; collateral is secondary and matters most in secured lending.
Know loan types: consumer (auto, personal, credit card), real estate (first and second mortgages, home equity), and business lending. Each carries distinct documentation and regulatory requirements. Regulation Z (Truth in Lending) requires disclosure of the APR, finance charge, amount financed, and total of payments for consumer credit. The APR reflects the cost of credit including certain fees, which is why it differs from the simple interest rate.
Key administrative concepts: loan-to-value (LTV), debt-to-income (DTI), credit scoring, and loan classification (current, delinquent, nonaccrual, charge-off). Credit unions must maintain an allowance for credit losses - under current accounting guidance (CECL), expected credit losses are estimated over the life of the loan rather than waiting for incurred losses. Traps include confusing APR with note rate, and confusing delinquency (past due) with default (breach).
Worked example: A member borrows $20,000 at 6% for 60 months. Monthly payment = P × [r(1+r)^n] / [(1+r)^n − 1], where r = 0.06/12 = 0.005 and n = 60. That yields roughly $386.66 per month. If the member's gross monthly income is $2,000, DTI on this loan alone is about 19% - but total DTI includes all obligations.
Watch for traps around secured vs. unsecured recovery, and the difference between delinquency and charge-off.