LAS VEGAS-After the "mess" of the recession, Andrew Bieno says some credit unions have become overly cautious with auto lending.
Bieno, a strategic consultant with Experian, told attendees of the recent CU Direct Lending Conference here that risk-mitigation strategies deployed in 2009-10 at many CUs overlap each other and are "hurdles" to getting members OK'd for a loan.
"Credit unions need to look at which policies are the best predictor of a delinquency and perhaps streamline the policies in a smart way," he told Credit Union Journal. "Risk-based pricing is a way of making more loans, but sometimes credit unions want to keep rates down as a statement-so they will not write a loan at 18% or 19%."
In some cases, CUs will attempt get members into a credit-builder program, though such programs are more commonly used with credit cards or consumer loans.
The No. 1 question CUs are asking Experian: How do we grow loans smartly?
His response: Examine lost accounts, both declines and approved not funded."We work with clients to find out what that member did next-did he go down the street and get a loan somewhere else, and is that loan performing?"
Industry Trends
Bieno said in the first quarter of this year, new and used originations were both up markedly since the lows of 2009 (new) and 2010 (used). For loans vs. leases on new vehicles, the vast majority of consumers opt to take out a loan. The split was 87.4% to 12.6%, with slightly more leases in the first quarter of this year compared with previous years. Used leasing spiked in 2008-09, but now is back to slightly more than 3%.
Credit union marketshare of loan financing showed a big increase during the recession as other lenders pulled back. In this year's first quarter, CUs had 11.94% of new auto loans and 19.88% of used loans. The percentage of new loans is up from the last three years, while the CU share of used loans has been steady for Q1s in three straight years.
"Credit unions have seen an increase in nonprime loan financing over four straight years," Bieno said. "Credit unions always are higher on average amount financed than the rest of the industry. With the improving economy, credit unions are seeing higher loan-to-value ratios and borrowers with better income."
The percentage of prime borrowers has been very steady, while the percentage of super prime has seen a slight decline.
To help consumers keep payments down, Bieno noted CUs now are writing "significant numbers" of loans for 72 and 84 months.
Outstanding balances have increased, both for the auto finance industry overall and CUs specifically. CU repos are down, even though industry repos are up.
"Credit unions should expect the average monthly payment amount to remain flat, rates to remain extremely low and extended terms to continue."
