The programs allow members who might need some extra money in a given month to “skip” a payment by pushing it to the end of the loan term. The arrangement generates a little extra money for the institution through the attached fees.

Many credit unions now have skip-a-pay programs, which are a form of loan modification, said Vincent Hui, managing director at Cornerstone Advisors.

“It’s not a value proposition driver during the loan origination process, but it can be effective in helping build some loyalty when borrowers run into problems – not to mention helping loans potentially not become delinquent. However, the credit union still needs robust credit risk management programs.”

 – Vincent Hui
Managing Director
Cornerstone Advisors

Otherwise, the program just “kicks the can down the road” for a loan that could eventually become delinquent and maybe charged off, Hui said.

Mountain Home, Idaho-based Pioneer Federal Credit Union recently extended its partnership with Portland, Oregon-based Tyfone to include the digital banking provider’s Skip-a-Pay solution.

The $746 million-asset Pioneer FCU saw a 3% year-over-year increase in fee income at the end of 2023 to $7.3 million, according to call report data from the National Credit Union Administration.

Tracey Miller, SVP of Operations at Pioneer, recently told CU Broadcast that the credit union originally had its own product similar to Tyfone’s Skip-a-Pay but that it was not as easy to use.

“We built them and we just asked Tyfone to adopt them, but we were like ‘these are still not where they need to be’.”

 – Tracey Miller
SVP of Operations
Pioneer

Miller said members are more likely to leave the credit union if those digital solutions are not quick and user friendly, so the credit union turned to Tyfone’s product.

And it is not just about benefiting the credit union’s members.

Miller said solutions such as Tyfone’s Skip-a-Pay take a lot of the burden off of Pioneer’s lending and payments services teams.

Tyfone’s Chief Commercial Officer, Marcell King, agreed, saying the company has automated the entire skip-a-pay process of qualifying a loan, rolling the loan forward and making the payment completely self-serviceable for the member.

“That is a significant impact on the credit union staff,” King told CU Broadcast.

Tyfone obtained its Skip-a-Pay digital solution in its merger with Cubus Solutions in 2023.

Jim Adkins, managing partner at credit union consultancy Artisan Advisors, said skip-a-payment programs will increase interest income for credit unions due to the fact that principal balances will remain higher than they would have been, and there will “no doubt” be an increase in fee income because credit unions charge a fee for the service.

“Credit unions have to develop strict rules for a skip-a-payment program so that the product is not abused and winds up hiding delinquencies, and credit unions need to pay close attention to the compliance rules surrounding the product. The disclosure rules for open-end credit differ from the disclosure rules for closed-end credit, so an in-depth review of the credit union’s skip-a-payment program and the compliance requirements is recommended.”

 – Jim Adkins
Managing Partner
Artisan Advisors

Adkins said such programs have been around for years and were very popular before the advent of credit cards, especially around major holidays like Christmas, when consumer budgets can be strained.

Tim Scholten, founder and president of the credit union and community bank consultancy Visible Progress, said the idea of allowing members to skip loan payments is nothing new and that banks and credit unions have been offering them for more than 20 years.

Like Adkins, he said the programs have historically been most used around the Christmas and New Years holidays and also around early summer when members are taking vacations.

“It’s something that drives fee income and that consumers tend to like. This is typically offered only to consumers that have a decent payment history and good credit scores and not consumers who are already delinquent on their loans – those are negotiated extensions managed by the collections area. But overall it is a helpful program to some and a good source of fee income for the organization.”

 – Tim Scholten
Founder and President
Visible Progress