Open-ended loans are being leveraged by more credit unions as they seek to appeal to members who don't want the inconvenience of filling out more paperwork for big-ticket purchases.
Lenders at the CUNA Lending Council's annual meeting here were told by two analysts they should give more thought to open-ended lending, which is similar to a revolving line of credit. A member applies for a loan once and can add to it without additional paperwork and often with just a telephone call or mouse click.
"Open-end lending anticipates repeat activity, which simultaneously helps credit unions and their members," said Bill Klewin, assistant vice president with CUNA Mutual Group Lending Solutions. "The member has the convenience of adding new purchases with minimal effort, and the credit union can increase and handle more loan volume without adding staff. It significantly decreases the cost per application," he said.
Open-end lending is almost exclusively a credit union product, with a majority of credit unions offering the product, compared with just a handful of banks. In 1980, CUNA Mutual worked with the federal government to adopt language that helped bring open-end lending to the credit union marketplace. Shortly thereafter, CUNA Mutual introduced LOANLINER lending. The few banks that adopted the practice did so after hiring a credit union executive, Klewin said.
Members have many options with open-end lending once the account is established. They can create sub-accounts for items such as vehicle loans, vacations, debt consolidation, computer purchases, and cash advances-all without signing more forms. Each sub-account has its own interest rate and terms and, in most cases, is paid off separately. Sub-account terms can be modified, which can't be done on a closed-end loan without refinancing.
CommonWealth Central Credit Union, San Jose, Calif., has used open-end lending for more than 15 years, and began using CUNA Mutual's LOANLINER Laser Lending documents in February 2004.
Suzanne Picard, senior vice president/chief operating officer at CommonWealth Central, said before automating the open-end system, it was difficult to determine which documents to use. Frontline staff had to sift through many documents to find the appropriate ones for the loan scenario they were handling. Now, by entering information into their document generation system, they only get what is required for that scenario, she said.
"CommonWealth employees love having the automated system," said Picard. "The member doesn't have to sign a new form each time they take out a new loan. We truly operate in an open-end environment."
Despite the simplicity and speed open-end lending offers credit unions and members, it's important to find other ways to keep the process quick and easy.
"Pre-approving members for signature and auto loans is a real timesaver, especially for members who have been targeted for these products," said Klewin. "Providing quicker disbursement of funds is another critical step. Set up an automatic deposit of funds into their account and offer auto draft for payment. This way, the member never gets a paper check, or has to write one."
Klewin cited another example of a credit union that has used open-end lending effectively and with measurable results. Listerhill Credit Union, Sheffield, Ala., used open-end lending for years with moderate success until developing a "member relationship guide" last year that contained open-end documentation and deposit account information. The results: loans were up 23% and payment protection increased to 21% (from 5%).
