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Dr. Chandrasekhar (Chandu) Valluri | Minnesota State University, Dr. Vivek Patil | Gonzaga University

A Credit Union Who Cares: The Application of the Integrative Justice Model (IJM) to the Customer Churn Problem

It was January 1, 2020 and the CEO of A Credit Union Who Cares, along with her team was posed with an ethical dilemma. As a direct subprime lender, with over 60,000 members, the credit union was founded on the mission of evaluating customer credit worthiness on multiple levels. Instead of merely assessing an applicant’s credit, capital and collateral worth (i.e. 3Cs of financial lending) this credit union was deeply dedicated to assessing and prioritizing customer character worthiness as part of its auto loan application process. However, the credit union recently discovered that they were experiencing an unusually high customer churn rate (i.e. voluntary customer attrition/turnover) in their used auto loan product offering. The study of auto loan churn is integral as over 107 million Americans in 2017 incurred auto loan debt compared to roughly 80 million in 2012. Detailed data analysis revealed that existing customers were either switching to prime rate lenders (i.e. leaving the credit union) or paying off their auto loans early by selling their vehicles. While, prepayment is in the best interest of the consumer as it improves their financial status, ensures that they are not ethically violated, safeguards society and fosters deeper trust and confidence in lending institutions it is disadvantageous to the lending institution. Customer churning behavior results in the significant loss of credit union income, impacts customer lifetime value (CLV) and dampens relationship marketing efforts. Coincidentally, subprime auto lending has been on the rise since 2008 but is very costly and risky to financial institutions. Consequently, the CEO and her team has been forced to question the long-term financial viability of offering this loan product. Moreover, it has forced these executives to brainstorm creative ways in which the credit union can continue to remain steadfast in its commitment to serving its subprime customer base while not jeopardizing its credit union’s financial future. The proposed abstract presentation will outline the merits of employing the Integrative Justice Model (IJM) as the basis to addressing the credit union’s ethical dilemma. More explicitly, the authors detail how carefully employing each of the 5 key elements of the IJM serve to mitigate the organization’s ethical conflict and aid in effective financial decision making. The authors eventually seek to develop this work into a full-fledged case study.