Unhappy With Results, AFCU Alters Indirect Loan Plan

In an attempt to slow growth of members acquired through indirect auto financing, Affinity Plus Federal Credit Union has restructured its strategy.

The credit union has informed the 100 auto dealers participating in its "CU Save" program that only existing members would qualify for the lowest rates. Those who join APFCU just to get a lower rate are now being charged a two percentage point rate premium.

The issue isn't the quality of the paper being acquired or resulting delinquencies, said CEO Kyle Markland. Rather, Affinity Plus has found members who join as the result of an indirect loans have relationships that start and end with the loan.

"These types of loans (typically) do have higher delinquencies and charge-offs, but nothing more than we previously experienced. It's still within the parameters we set out," Markland said. "It's just that they don't fit in to our relationship-building strategy. They don't want a credit union, they just want their loan financed."

And, he added, it's not that his marketing team hasn't tried either. "We had direct call programs to members who financed their vehicles through us," he said. "We didn't get additional relationships out of them." Markland added that four months of that targeted marketing lured more business from just "10% to 11%" of those members.

Markland wanted to make it clear that the change doesn't mean the $850-million credit union hasn't been pleased with the results of its indirect lending program.

Too Much Success

"Indirect lending programs do have a place in credit unions," he said. "This is in no way saying that we aren't happy with our program. It does drive loan growth and it does drive member growth."

In fact, recent numbers indicated that 80% of all new members came through indirect auto lending. That success, however, ran counter to Affinity Plus' core strategy, Markland said, noting that the original intent was to have 20% of new members resulting from the indirect lending program.

"Why would we just take a bunch of single-service strategies after we developed this (member relationship) program," he said. "It's contrary to our corporate-wide strategic goal of building long-term relationships with our members."

He said the focus is on the individual needs and goals of each member, rather than on products or the organization. As a result, growth in membership and asset base has been significant. Last year, APFCU membership grew by more than 11% while assets shot up by $135 million.

Markland pointed out that indirect auto lending rates are still good for new members compared to the general market. Since restructuring, 29% of new members have still opted for the CU rate plus two percentage points.

Since announcing its new strategy, Markland said, at least one other credit union in the area has said it intends to do the same.

Affinity Plus has more than 116,000 members throughout the state with one in two Minnesotans eligible to become members through a broad range of eligibility criteria.