MADISON, Wis. - Will the now-concluded Cash for Clunkers translate into Cash for Credit Unions?
Beyond the straight loan dollars, the issue now is whether members who turned in a Clunker and financed a new car will also buy insurance and ancillary products from their credit unions? According to Rich Trace, director of credit insurance product management for CUNA Mutual Group, "The jury is still out from our perspective."
"We know the auto manufacturers are going to sell about 200,000 more vehicles than they had expected, but we are not sure what credit unions' share of that will be," he said, adding it may take two months to obtain hard data. "When an insurance policy comes in it is difficult for CUNA Mutual to know if it was from the indirect channel, or if it can be attributed to Cash For Clunkers."
Sandra Torres, senior vice president of sales and marketing for Deerfield, Beach, Fla.-based InterContinental Warranty Services, said she expects the $3-billion federal program, combined with consumers retaining vehicles longer, will lead to more interest and sales of the extended warranty programs IWS offers.
Trace said CUNA Mutual Group's product menu has not changed greatly over the years, but of late, the company has been seeing much more interest in debt protection. Similar to credit insurance, which pays off a loan if the insured borrower loses his/her life or becomes disabled, debit protection has the disability component plus another covering involuntary unemployment.
"This is very timely considering the recession, because it adds that life event, as well," Trace said. "Debt protection helps the credit union avoid a delinquency, and it keeps the member in their car so they can find another job. Credit insurance provides a benefit to the member sized to the auto loan. The value to the credit union is in non-interest income through an ancillary service, and it also has the advantage of reducing delinquency rates."
"We believe people need to be able to stay in their car because they will need it for their next job," Trace said. "But not everyone thinks about that when taking out a loan. To the extent there is confusion, people might not be making an informed choice."
The economy has had an impact on credit unions, their members and CUNA Mutual Group and other vendors who serve the movement, Trace noted. "The impact on our business, and for credit unions, comes from the fact loans are down and spending is down. With fewer loans coming in, there is less non-interest income from sales of those insurance products. This stress on credit unions is big."
In San Antonio, SWBC CEO Mark Hein reminded that when it comes to any insurance product, managing risk remains paramount.
"One possibility is the risk of a continued downtrend in the economy, which means credit unions must have insurance to protect their loan portfolios, he said. "There are various coverages credit unions can subscribe to to protect those assets. Also, they should make sure their bond coverages are up to date."
