Late Entrant To Indirect Lending Finds It Directly Boosts Loan Portfolio
CU: Coastal FCU
Category: Indirect Lending
Credit unions around the nation have been involved with indirect auto lending for years, with varying degrees of success. Coastal Federal Credit Union here, however, was something of a late entrant, not moving into indirect lending until 2004.
The wait appears to have been worth it, as it has seen both an increase in lending of 118%, helping it to stem a 40% decline in market share in 2001 and 2002.
"We were losing in share dollars the previous two years. It wasn't through lack of effort by Coastal," Coastal SVP Keith Hackley said.
Previously, Coastal FCU played the part of a responsible credit union by educating its members about car loans, proper financing and how to spot a good car to buy. Coastal FCU staff hoped they would be rewarded with a loan application for the effort, but that often didn't happen. Instead, members learned from Coastal FCU and then went out and bought a new car on their own, Hackley said.
"They used our information and application, but we weren't getting the end product," he said.
Car dealerships won the direct lending battle with quick financing and turnaround times. The $1.5-billion Coastal FCU started to examine indirect lending in late 2002 and intended to form its own program to control quality. When that task proved to be too difficult, Coastal FCU turned to CUNA for advice and data on demographics. At the same time, Rancho Cucamonga-based Credit Union Direct Lending (CUDL) approached Coastal to partner in its expansion into the East Coast auto market.
"We were ramping up our own program, but we needed to be connected to dealers in a hurry. They had the engine," Hackley said of CUDL.
With Coastal FCU being one of the first credit unions in North Carolina to move into indirect lending, in addition to CUDL's expertise and extensive network of dealers, the loan applications and approvals grew rapidly. Even with the 118% increase in 2004, so far in 2005, auto loans are up an additional 20%. Hackley credits CUDL with the spike in volume.
"It did explode on us. We did not forecast the volume," Hackley acknowledged.
Hackley said indirect lending has blossomed into a significant 44% of the credit union's net bottom line, with a portfolio totaling $450 million.
VP of Lending Services Joe Huray said Coastal FCU initially thought it could hire two or three people to handle the new program. With the explosion of loans provided by the partnership with CUDL, the department has grown to 12 people, which includes analysts who build daily reports and who are overseen by Lending Analytics Manager Steve Sureda.
"At any given time, we can tell you everything about that portfolio," Sureda said. "We look at this daily. If delinquencies get too high, we make adjustments.
Coastal FCU staff monitor every aspect of the indirect lending program with extensive analysis, reporting and presentations given at each and every board meeting. Tight management and preparing for the volume of applications is a key factor to Coastal FCU's success. "Rarely a day goes by that we don't discuss indirect lending," Huray said.
Hackley said the 149,000-member Coastal FCU strives for a three-day turnaround on all loans, and since it only deals with "A" paper in its indirect portfolio, it can run a volume operation and keep rates around 5.5%. Hackley said a car buyer sitting in a dealership will get the same rate as if they walked through the front door of Coastal FCU.
"We're a flat-rate shop. We don't allow the dealer to mark up," he said.
Hackley said Coastal FCU has assisted other North Carolina credit unions set up their own indirect lending programs after the success of its own program.