RACINE, Wis. - Educators CU is appealing the state regulator’s order to shut down its successful used auto sales, following complaints from the auto dealers’ lobby.
The order issued last month by the Office of CUs found the $950-million credit union’s used auto sales is impermissible under the state’s credit union statute, which requires that activities undertaken by state charters must be “routine daily operations of credit unions.” The order will not prevent the credit union from selling repossessed vehicles or those coming off lease from credit union members.
Jim Henderson, SVP at Educators CU, is optimistic about the appeal and the decision he believes will be handed down later this summer.
“We think our appeal is promising,” Henderson said. “Our state statutes are kind of unclear whether it would really be an authorized service. We’ve been doing this service either directly or indirectly over the last six years through a CUSO we own and we never heard of any problems or concerns until December last year. We are a little puzzled.”
Appeal: Express Consent Granted
The CU’s appeal insists that state officials gave their express consent to the used auto sales when the Department of Transportation issued a dealer’s license to sell used vehicles in 2002. Since then, Educators has sold more than 2,000 used vehicles. In addition, credit union officials say they have been filing annual call reports detailing the results of its vehicle sales to state regulators during that time.
“When we started this six years ago, we informed the Office of Credit Unions what we were doing, and there were no problems or concerns expressed at that time or anytime thereafter,” Henderson explained.
Henderson contends that the success of its used car sales model, run by ECU Financial Services, Inc., a wholly owned CUSO of Educators CU, may have sparked the challenge from auto dealers.
“Our business model is set up to focus on the service experience–it’s about how we treat our members,” Henderson said. “The program has a three-day return policy, we warranty cars for 60 days against repairs, and it’s not high pressure. We are looking to satisfy a member need, not sell a car.”
Meanwhile, the CU is looking to rally member opinion for the service to support its appeal. It placed information about the issue inside its newsletter and on its website. The CU also sent a mailing to members who have purchased cars from the CUSO.
“Some members are asking how they can help,” Henderson said. “At this point we are gathering member stories about why we should continue to offer this service.”
Educators CU, which houses its auto sales operations in a $7-million property, is weighing options. “If the decision came down that credit unions or CUSOs could not have ownership in a retail operation, we could look at divesting type options or work with a partner,” Henderson said.
The state auto dealers see the credit union’s sales as unfair competition, making potential buyers captive borrowers, and its chief state lobbying group, the Wisconsin Automobile and Truck Dealers Association filed a complaint with the state regulators challenging the legality of the sales.
