LARAMIE, Wy.-Laramie Plains FCU has grown its auto lending portfolio by more than $1 million since incorporating PassTime into its sub-prime vehicle lending program.
PassTime systems are installed beneath the car's dash and beep at the driver when payments are coming due. FIs can use PassTime's website to prevent the vehicle from starting if the loan becomes delinquent, and the devices have a GPS component the allows the lender to locate the car in the event of repossession.
Tyler Valentine, CEO at the 4,800-member, $34-million credit union, said that Laramie Plains has been able to expand its lending to lower credit tiers since signing on with PassTime in February 2011. The CU has a policy that those loans can only be 5% of the total portfolio (it currently accounts for about 3.5%). "It allows us to have a bit more risk than we normally would in our portfolio because the risk of collateral loss is so much less, because we can locate the vehicle and timely payment is basically assured," he said.
Laramie Plains generally requires PassTime on vehicle loans for credit scores 600 or lower, along with money down (10% or 20%, depending on credit history) and at least one year on the job.
LPFCU's two loan officers don't promote PassTime but present it as an option to loan applicants whose credit makes them ineligible for standard lending. "We're very up front that if you're past due on your payment, the vehicle is disabled," said Valentine. Members must sign an agreement to accept the service and initial under each paragraph to ensure that they understand all components of the agreement.
How Loans Are Priced
Loans are priced as though the vehicle was not equipped with PassTime, and there is no fee to the member. Valentine offered the example that a member with a 580 score would pay 15.25% on a 60-month term for a new car. The device costs about $50 to install, and LPFCU covers that cost if the loan is in-house; if the loan goes through a dealer, the dealer covers that cost. The borrower is responsible for paying for the device to be removed and returned to the CU once the loan is paid off. The CEO estimated that once activation, monitoring, collection and other costs are factored in, each device costs about $250.
Valentine said that LPFCU uses the system on a weekly basis to alert members to upcoming payment due-dates or to disable vehicles, but has only had to repossess four cars in two years. Only three people have turned down financing because of PassTime, "but that was a loan that we wouldn't have done anyway without the device, so we didn't feel that it was a loss in business to us."
Laramie Plains has done about $1.5 million in loans with PassTime and currently has about $1 million portfolioed. Valentine said that LPFCU may have reached a saturation point with PassTime loans, as new loans and payoffs come in at about an equal rate. The CU does not advertise the service and has no plans to expand it. Valentine said he expects demand to remain static in 2013.
Valentine stressed that the device has enabled the CU to lend to many members it might not have been able to serve, but stressed the importance of good relations with dealers and installers to make sure the device is properly installed to effectively mitigate risk.
