LAKE BLUFF, Ill.-Raise auto loan rates and blame it on Washington. That's one step credit unions can take as a result of the downgrade to U.S. Treasuries, one economist suggests.
Mike Moebs, economist and CEO of Moebs Services, pointed out that the S&P downgrade means the basic Treasury rate will rise. "That will mean everything that is linked to it, which is just about everything, including the prime rate, is going to rise. So if I am a CFO at a credit union or bank, I've got to be saying this is an opportunity. I did not cause the added risk of the downgrade yet I can take a proactive position and increase my auto loan rates by five to 25 basis points right now, instead of waiting for the inevitable to come."
Moebs asserted that auto loans are the lending area in which CUs-starved for greater margin-can make a move up on rate. "You can't really do anything with mortgages since that market is in such disarray. And you can't touch credit cards due to the CARD Act. That leaves auto loans."
Moebs believes a five- to 25-BP increase will not affect consumers' car-buying decisions, explaining a 25-basis-point increase may mean $2 to $3 extra on a monthly payment.
Moebs noted the CFO at Ford Motor Credit won't hesitate to raise rates, and will cite increased cost of funds as the reason. CUs can do the same. "I can explain to the examiner and to the borrower that all roads lead to the White House. If I am a credit union CEO or CFO I got to be saying, 'Raise those bloody rates.' "
