Simple Steps, CUSO Help Indirect Loans To Surge

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South Carolina FCU's VP of Lending John Bryan swears there is no "black magic" involved in his CU's successful indirect lending program.

"Really, it's more simple than you would imagine," he said, crediting great staff and state-of-the-art technology that allows instant decisions and common courtesies that include welcoming new members who might otherwise be oblivious about their new credit union relationship and what it means.

South Carolina FCU topped $28.5 million in indirect, new loan volume in August, Bryan said. Its CUSO-created to give other CUs support in their indirect lending ventures-expects to reach $100 million in loan volume by the end of the year.

Bryan said South Carolina Federal decided to form a CUSO, Indirect Lending Services, LLC, in late 2002 after a decade of successes with its own in-house indirect lending program.

He serves as its president. His VP is Opal Jay, former VP of sales and finance for S.C. Federal. Jay has more than 39 years of expertise in indirect lending, he said. In fact, Callahan and Associates rated her team as one of the best in the country.

Critical Components

"The knowledge we gained with that experience and the combined knowledge and lending experience of the staff at ILS are critical components of our success," Bryan said, adding that S.C. Federal wanted to offer the support to other credit unions that didn't have the experience, expertise or desire to manage a full program. "Our service aims to allow a credit union to offer this product without the heavy investment of staff and technology."

Presently, ILS has five CU clients and processes an average of 1,300 loans per month, up from 298 during the first quarter of operations. The goal is to expand the program offerings to CUs throughout the country.

"We have achieved the growth that we desired to date and have learned how to successfully manage a CUSO specializing in indirect lending," he said. "We would like to grow to a greater number of clients who are interested in our unique structure."

Among the clients that offer praises about the CUSO is Carolina Trust Federal Credit Union in Myrtle Beach, S.C. with $111 million in assets.

"Our indirect loan growth is amazing and has exceeded all expectations," said CTFCU President Jerry Miller. "In fact, we were recently named one of the top credit unions whose annual loan growth was a result of indirect loan success."

Bryan said other clients have seen substantial growth and volume as well.

"I think I can say without exception that credit unions that have joined us in using our CUSO have seen the results...more than 50% of their car loans come through indirect lending."

Reaction From Dealers

Dealers have expressed similar praises about the ease and efficiency of the software, he said, adding that they are particularly pleased that there is no cost to them for submitting applications as is the case for many indirect lending relationships between dealers and financial institutions. "The program contributes to faster turnaround of loan approval for members of client credit unions, particularly at critical times such as weekends and evenings." Bryan said.

As of early September, he said, the CUSO approved and funded $132.8 million in indirect loans for its CU clients. And, with an approval rating in the high 70s to low 80s, he said, CUs get "real bang for their buck."

While there are certain risks, Bryan said the "dealer agreement" has specific language that protects the credit union clients should there be any fraud, misrepresentation or erroneous information given during the approval process.

"Based on their approval, the dealer is contractually obligated to pay off that loan," he said, adding that other safeguards come from the expertise of the staff underwriting the loans, management and tracking reports and "getting to know who you are dealing with and how they operate."

Bryan said because the program is wholesale rather than retail, it's generally very competitive. "Dealers are competing to sell their cars at the best prices while members want to best rates on financing," he said.

He said South Carolina Federal is confident in its sophisticated technology, scoring capability, expediency, real-time status updates and regulatory compliance. Its software, called Dealer Indirect Lending and Leasing System, or Dills, was created by Indirect Lending Technologies, LLC.

No Need For Staff

"The client can eliminate the need for an underwriting staff that comes with a higher price," he said. "We have the knowledge to properly structure their effort."

Bryan said his team takes to indirect lending relationship even farther with efforts to entice new members to become active members.

"Granted, I think as an industry, we have limited success with cross-selling these members," Bryan said. "But there are a number of things that we are doing to make them aware that they are dealing with a credit union and that they are eligible for other products and services."

Among them, he said, is sending welcome letters to its newest indirect auto loan members. "We want to make them aware that they are dealing with this credit union and that they are eligible for the many other products and services," he said. "We entice them to use additional products."

Bryan said the CU recently launched a direct call campaign that includes calling members within two to three weeks after their loan closes. "It appears that we are most successful if we get to them early on after the loan is signed," he said.

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