Subprime auto lending isn't the shady business some think it is, a former Mercury Finance Co. partner told bankers.

"I should have come up here wearing a plaid sports coat and gold chains, then torn them off, saying, 'This isn't how we do business,'" said Mitchell Kahn, president and chief executive of First Merchants Acceptance Corp., Deerfield, Ill. "But I don't own a plaid sports coat."

Mr. Kahn, who spoke at an auto finance conference here sponsored by Consumer Bankers of America, could have passed for an accountant in his quiet gray suit and wire-rimmed glasses. He was a principal partner at ill- fated Mercury and a senior vice president until 1989.

"This is a legitimate, viable, and growing industry" despite the recent disasters, he said, and bankers need to position themselves to handle the $50 billion subprime market.

Bankers are intrigued by the industry, he said, but many have been deterred from entering it. The answer? Form a partnership with an expert. "The future," Mr. Kahn said, "will belong to banks that can ally themselves with strong subprime lenders."

The convention hall here was lined with booths of subprime lenders hoping to drum up banker business.

Auto Credit Clearing House, a Boca Raton, Fla.-based division of National Auto Finance Co., is already working with four banks, including First Union, said a representative here.

Loans that don't fit into the bank's credit profile are referred to Auto Credit, which pays banks a fee for the business.

Bankers Motor Acceptance Corp., a newly formed Irvine, Calif., company also came to the conference to solicit business. The computer-savvy subprime lender is hoping banks will be attracted to the speedy loan approval offered by its Internet program.

Dealers fill out an onscreen work sheet, collect necessary documentation, then forward the loan package to an affiliated bank. The bank audits the loan, then passes it on to Bankers Motor if it does not meet its credit standards. Bankers Motor pays $200 to the bank for every loan closed.

Transsouth Financial, a unit of Associates Corp., is another lender that takes auto loans turned down by bankers. The Fort Worth-based company pays affiliated banks $200 to $500 for each loan it receives, said Sharon Heller, national sales manager.

Many consumer bankers agree that subprime auto loan applications need to be accommodated. Otherwise, they say, demanding auto dealers, who refer borrowers to banks, take their business elsewhere. To a dealer, "you're only as good as the last loan you've accepted," lamented one banker. "Turn down a loan, and you'll spend six months repairing that relationship."

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