Why 1 CU Exiting An Indirect (And Profitable) Auto Lending Program

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In a move that runs counter to the general trend among credit unions, Affinity Plus FCU said last week it has terminated its once-profitable indirect lending program to focus more on direct relationships with its members and potential members.

"We've tried everything possible to convert these relationships to multiple-relationship accounts, but we were just not getting anywhere with it," said Kyle Markland, president of the $910-million credit union.

The termination of the indirect program has been in the works for the last two years. Up until then, Affinity Plus had been reaping millions of dollars in new auto loans through the program-as much as $30 million, and hundreds of new members-a month. But credit union officials were finding the resulting car loan-based relationship with those new members shallow and unsatisfactory.

"We did not exit the program because of costs or losses or anything like that. We exited because we want to focus on serving our core members better," said Markland.

"We were finding our growth strategy was inhibiting our ability to service our existing members," he said. "Credit unions were not founded just to give somebody a car loan. Our goal is to have a lot of depth and products with every member."

A recent analysis of Affinity Plus members found that as many as 30,000 of its 120,000 members signed through the indirect program had an average of just 2.1 products with the credit union, including a car loan and the mandatory savings accounts. That means they were not using other CU products and services. "We didn't want to simply be a great deal on a car. We want to build the whole (member) relationship," said Markland.

As part of the new strategy, Affinity Plus is putting more emphasis on direct lending, which continues to grow at a double-digit rate, and on educating all members on the availability of the credit union's broad array of products and services.

"In today's environment, you can't adequately compete against the captive finance companies, the dealers and all the others. Their only goal is to sell cars. Our goal is to have a relationship with our members," said Markland.

APFCU has been slowly phasing out of the indirect auto program, reducing its lending from as much as 800 to 1,000 loans and $30 million a month two years ago, to around 200 loans and $4 million to $5 million a month in the first quarter of the year.

"We rode that horse for awhile; we profited by it; now we're moving on to greener pastures," said Markland.

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