Boosting loan business: a Maryland bank successfully used an alternative technique for targeting customers for direct-mail credit solicitations. The approach, which employs a predictive modeling tool based on summarized credit data, was not only easier but less costly than traditional methods.

• Author: Berger, Tim

A PROBLEM FACING MANY MARKETERS TODAY is how to grow loans in the face of three daunting challenges: more conservative loan underwriting standards, smaller marketing budgets, and the need to show a positive return on investment (ROI).

An example of a bank that found a way to overcome these types of loan-growth obstacles is Sandy Spring Bank (assets: $3.7 billion), Olney, Md.

"With the downturn in the economy over the past few years, like others, our bank had been focusing on conserving and growing deposit dollars," says Jim Burrows, the bank's senior vice president, marketing. "But that changed last year, when we began efforts to grow our equity-loan portfolio. We had tried to sell equity lines before using traditional mailing methods, but found them cumbersome and too costly." Instead, the bank took a new approach with a predictive modeling tool that uses summarized credit data to estimate the likely credit risk for households in a small geographic area.

The bank found that the new technique was less costly and produced a higher ROI. Here's how the bank went about implementing this new equity-line campaign.

Preapproved mailing lists

Many credit solicitations for equity lines, mortgages, autos or other loans frequently use "preapproved" mailing lists. But using a credit bureau to buy a preapproved list can be expensive, and the rules surrounding "firm offers" of credit are at times overwhelming and don't give much room for the marketer to maneuver.

A preapproved campaign takes a bank's customer list (or prospect list) and runs it through one of the major credit bureau's databases to score the names and provide the institution with a list of "credit worthy" loan prospects that meet the bank's risk criteria.

Mailing requirements

The Fair Credit Reporting Act requires the bank to give a "firm offer" of credit to any consumer selected by the prescreening process, and the federal law also requires that this credit be extended in a fair and consistent manner.

The process and the consumer's ability to "opt out" of prescreening process and not receive future mailings also needs to be spelled out and highlighted on every mailing piece--typically in a box on the bottom of the letter/postcard or on the back of the letter depending on how much letter copy is involved. This process can not only be cumbersome at times but also costly and time consuming.

Other options

Recently many banks have chosen to use a simpler and less costly "invitation to apply"...