Software, Now Available To Other CUs, Speeds Approval Process
What is keeping credit unions from capturing more of the auto loan market?
Credit unions have 18.4% of all auto loans in the United States and vehicle loans are 37.5% of the total $444.5-billion credit union lending portfolio, according to Callahan & Associates, meaning auto loans remain the mainstay of the loan portfolio. But shouldn't credit unions be getting more than one out of every five loans?
As the Filene research on young adults' buying behavior indicates, speed is essential in today's auto market. Young people-and many adults-make financial decisions quickly. They expect their financial institution to give them immediate answers on loan applications and financing.
FORUM Credit Union in Indianapolis developed proprietary software that provides answers to 60% to 70% of all loan applications instantaneously. The remaining 30% to 40% of the applications are answered within 10 minutes. They are so confident of their response time that they advertise that the credit union will pay members $10 if they fail to answer your application within ten minutes-they have yet to pay the $10.
"We track the time it takes to fulfill the application," said Doug Truem SVP-lending and technology. "Like McDonald's, which tracks drive time, as soon as the application comes in, it is tagged. After five minutes, it gets a red flag."
Some 90% of all direct loans are made through the call center. "We advertise to members that the quickest route is through the telephone. Even with Internet loans, we follow-up with a phone call," said True.
For purposes of illustration, the ROA and net worth ratios for FORUM Credit union from 2004 to 2006 is given in chart below.
The $980-million FORUM Credit Union developed browser-based software in 1999 to do three things: improve its slow turnaround time, create a one-price-fits-all pricing model, and resolve a sales environment where some staff were effective, while others were not. The new software, TAPS, met these needs and gives the credit union the ability to communicate with dealer software. This allows a competitive advantage in indirect lending, since dealers are apt to choose financial institutions that are quick; dealers are increasingly reluctant to spend time faxing paperwork back and forth. Some 42 credit unions are using the FORUM's software through its FORUM Solutions CUSO.
The TAPS software consolidates information from the credit bureau, existing account information, and comes up with a "smart recommendation" to give call center representatives an opportunity to recommend an appropriate product for the member. FORUM is typically loaned out. Currently they have a 128% loan to share ratio.
FORUM CU's ROA & NET WORTH RATIOS
2004 2005 2006 projected
ROA .93 .82 .83
Net Worth 9.60 9.31 9.43