NORCROSS, Ga.-What it describes as a "very credit union-ey" product has helped members with weak credit scores here to get a vehicle.
The result is a Credit Union Journal Best Practices Award for Associated Credit Union.
Associated CEO Lin Hodges explained that the "Auto Rate Reward" program came about as a way to boost low loan demand while also helping members whose credit has taken a hit during the past few years. Unemployment in Georgia is currently at 10.3% and Hodges noted that the state has "been hit pretty hard."
"We were booming during the real estate times and we were busted during the crisis, and it affected a lot of people," he said. ACU realized that perhaps as much as 20% of its membership fell into C or D paper category and set out to design a loan product around their situation.
Associated's "Auto Rate Reward" was designed for members with Beacon scores between 600 and 670. Loans are priced according to risk, but for each 12 consecutive months of on-time payments, ACU reduces the member's rate by an entire percentage point, up to three percentage points (over 36 months) of on-time payments.
Hodges offered as an example a member approved for 7.25% on a 60-month loan that, if paid on time, could end up at 4.25%. Not only would the member save money, he said, but Associated is paid off early because the amortization of the loan doesn't change, so the interest gets paid down more quickly.
"Everybody in the whole process benefits," said Hodges. "For lack of a better term, I think it's a very credit union-y type of product. It recognizes a significant amount of members being in a situation that they have very little or no control over, it saves them money, helps them establish credit and encourages timely payments for us. Everybody wins."
Hodges noted that the rates vary by the member and pointed out that "some loans might go into the double digits if that's what the risk-rating scores it at. But I would say that whatever the rate is, it's still going to be lower than alternatives that they can find at other places. At least that's been our experience."
Since the program launched in early June, more than 300 members have taken part, with almost $4 million loaned so far. Hodges said that if those members follow the program, they will collectively save more than $350,000 over the life of their loans. "That's a fair amount of change."
But Hodges also professed that he was surprised the program hadn't seen more participation among the credit union's membership, despite heavy marketing across various platforms. "It's a much smaller volume than we'd like to see," he said. According to its own analysis, approximately 19,000 Associated members are eligible to participate; the CU currently serves 149,000 members with $1.2 billion in assets.
Because of the current economic environment and the high number of members eligible, Associated plans to keep the program around "for the foreseeable future," said Hodges.
Building Member Loyalty
While he said it's a little too early to see how members' credit scores have been impacted by the program, Hodges noted that the program can definitely help build member loyalty.
"People recognize this program as being a good thing and us wearing the white hat in the whole process trying to help them," he said.
Hodges added the program is not a one-time effort, and plans are being made to remain in touch with these members to try to work them into other products over time.
"At a certain point in the amortization process we'll be back in touch and encourage them that when they're ready to refinance or buy another vehicle, come see us." When the time is right, he said, "we plan to capitalize and leverage the benefits that have accrued to the member and to us."
