Some CUs are seeing significant improvement in loan performance among their subprime auto loans by installing starter interrupters that prevent the vehicle from starting if the loan is delinquent.
How significant? Spireon, whose Loan Plus product is being used by more than 150 CUs, says its customers are seeing a 10% to 25% improvement in loan performance, including a 50% reduction in reposessions. Those credit unions, the firm says, are also seeing an average of two to four more loans serviced per collector, along with a 40% reduction in loss recovery costs. Spireon also touts a 33% recovery success rate and 95% asset recovery rate due to the GPS feature.
The central focus of Loan Plus is a starter interrupter that can prevent users from starting their vehicle if the member is late on payments. But unlike many other starter interrupters, the Loan Plus product also includes a GPS tracking component in the event that a repossession is necessary.
"You can automatically or manually set it to where, after so many days late — the credit union determines how many days that is — the member will get a signal sent to their vehicle and every time they go to start the car they hear a buzzer for about ten seconds," said Al Rodriguez, national CU director at Spireon. "Usually once is enough — it's not the nice buzzer like when you're not wearing your seatbelt; it's like a smoke detector going off in your car."
Participating CUs also have their own customized website and URL, which allows them to manage the product, including in the event of repossession. The site generates a random code that can be given to the recovery agent and used as many times as needed until the vehicle is located, without revealing any member information. If the member and the credit union resolve the repossession issue, the credit union can disable the code, so the agent no longer has access to it.
Rodriguez said the site is very intuitive for credit union staff, and it only takes about a half-hour or so to train lending and collections staff to use it.
One CU's Story
One credit union that has seen success with Loan Plus is Covington, La.-based First Castle FCU. Collections department manager Lionel Vead said the $60 million credit union began using Loan Plus about five years ago as part of a strategy to boost its indirect lending program while also hedging against risk.
Vead did not have specific statistics to share on how Loan Plus has impacted the credit union's $36 million auto loan portfolio, but said that the program has definitely made the collections process easier.
"When we shut off the vehicle, normally we get a phone call right away from those people to find out what's going on, why has our vehicle been shut off, and 99% of the time it's because they're past due," he said. Vead added members using Loan Plus are consistently easier to track down for payment than those without it.
"It is having the effect that we want; keeping our delinquencies down," he said. "Our delinquencies run well below a half-percent every month. If we have an issue where they go 30 days past due, we are able to locate that vehicle quickly, and if we shut it off because they haven't been returning our calls, it's an attention getter for people when they can't leave home to go to work in the morning or leave work to go home in the afternoon."
First Castle uses Loan Plus largely on "D" and "E" paper, said Vead, but it does not price those loans any differently because of the Loan Plus component. The credit union doesn't promote that they offer Loan Plus for "second chance" auto loans, and only brings it up during the lending process if it is appropriate to the member as a condition of the loan.
Spireon's Rodriguez said that each Loan Plus tracking device costs $399 per loan, which includes the device, GPS tracking service, website, installation in the vehicle and more. Participating FIs receive three years of GPS tracking, with additional years available at $24.95 each beyond that. But Rodriguez said that because most CUs don't generally pay for tracking beyond the three years because by that time members have either paid the loan off, traded in the vehicle or proven that they can be relied upon to pay promptly.
He said that participating credit unions generally create their own risk class and price their loans accordingly in order to compensate for the cost of the service.
One Size Fits All
First Castle's Vead said he believes Loan Plus can be effective at credit unions of all sizes, pointing out that he was introduced to the product while working at Metarie, La.'s Jefferson Financial CU, which is six times larger than his current credit union but used the product less aggressively than First Castle.
"We don't have as much money to lose as a bigger credit union does," he said, "but we haven't had the squawk back from the members when they get these GPSs. They understand we're getting that second chance because we put that GPS in the car. It's probably a loan that some other credit unions that aren't using the program wouldn't even look at, but because we are using the GPS program we'll look at the loan."
Vead added: "I think it should be used at $300 million credit union or a $1 billion credit union. Each one has the same responsibility to its members to collect and protect their interests in the credit union."
