Steer Clear of Predatory Car LoansSteer Clear of Predatory Car Loans™™
ILCUSYS
http:realsolutions.coop/assets/2008/10/17/SteerClearReport.pdf
Non-Prime Auto Finance is BIG for CUs
Percentage of Americans That drive to work. 88%. Fewer than 5% take public transportation to work.
Percentage of US auto finance market that CUs captured in 2007.
15%. $90 billion in used cars loans, 12% of CU assetsPercentage of 8 million used cars sold to low and moderate income borrowers annually that Cus finance
5% Credit Unions 30% Banks 60% sub-prime lenders
50% of CU loan applicants are turned down. If credit unions lend
Below FICO 600, their market is expanded by 15%. To no FICO, their low mod market is expanded by 40%.
How big is this market?
You Are Here
CUs Help Car Buyers Steer Clear of Predatory Loans
Survey of 251 Credit UnionsInterviews with
12 Credit Unions8 Vendors
SEVEN LESSONS
Lessons in non-prime auto lending
1. Financially viable line of business.
2. Transfer traditional character lending into automated decision-making process.
3. Assist members in finding cars.
4. Employ a hard close to cement bonds with members.
5. Insure borrowers against events out of their control.
6. Export risks by using loan loss insurance products.
7. Keep in touch with borrowers by monitoring and collecting loans early.
High Net Margins from Existing Members
Non-Competitive pricing in marketplace.
Price Non-prime loans for risk and effort.Members still receive a much better deal.This need not be charity work.
1
Credit Scores areFastInexpensiveSimplify loan pricingCompetitive
Since all lenders have the same dataNo relationship needed
Not subjectiveNon-discriminatoryUniform
Derive from one data source (credit repayment records).Incomplete
Reduce Underwriting Gap2
Missing: 25% of the Population2
More data sets means “Yes” more often
Payment of monthly rents / leases Payment of telephone, electric, cable television, natural gas and insurance bills Internet and catalog purchases Electronic bill paymentPublic sources of information including tax liens, criminal records, and bankruptcy filings
Ask and Verify
2
Reduce Underwriting Gap
FICO Expansion Score Link2Credit
Market MaxRiskWiseBill Payment VantageScore Experian, Equifax and TransUnion
2
2
Get in front of the dealer
Assist the member in finding a car
Credit Union Direct Lending CUDLhttp://www.cudl.com/
United Buying Service http://www.ubs4cars.com/
Motor Vehicle Certification Programhttp://www.mvcp.com/intro.php
Cars for Members http://www.carsale.com/
Auto Resource Centerhttp://www.cucompanies.net/pages/auto_about_us.asp
Auto finder Autoland http://www.autoland.com/
Enterprise Car Sale SmartBuys programhttp://enterprisesales.com/
3
Build the Loan Correctly
The Hard Closesituation appropriate member education
Thank you for the businessValue of membership
Verify loan application informationEmployment, residence, references, Photo of car
Review all Loan termsPayment amt and due date
Value of on time paymentInsurance requirementsLate fee and penalties
Keep in touchContact CU if there is a problem
Cross sell (Just in Time Education)Direct DepositAutomatic PaymentSavings Escrow
Guaranteed Refinance offer
4
Insure the borrower
Insure what they can’t controlCollisionMechanical Breakdown Insurance or extended warrantyGAP loan deficiency or residual value insuranceDebt Cancellation for divorce, injury, loss of jobCredit Life
Walkaway: Give the car back, no further collection or credit degradation.
5
Export the Risk
Use loan loss insurance products and guarantees.
Lender’s Protection, a risk poolCharlie Mac CARPooL program
Guarantees (NFCDCU Pride Deposits)
6
Keep in Touch
Allocate resources to collect the loan quickly
Make contact with borrower when one day latePremium to borrower for visiting Collection Officer in person:
$50 Pre-Paid cardRepossess when 30 days late.
7
Next Steps
A Toolbox for Asset Builders
Information on common financial problems and solutionsOn-line training for staffTools to better assess client needsQuality financial products and servicesAccess to advanced, experienced helpResources to help your organization
Benefits to Credit Union
Asset Platform is a source of membership and loan referralspartnership with non-profits
No up-front feesEasy Turn-key implementationCompatible with existing underwriting and application systems
Benefits to Credit Union
Credit Union chooses level of service
CU only pays for completed member applications or funded loan
Direct-to-Consumer loans perform better than indirect programs.
Quality controlled by lender underwriters with adherence to lender’s predetermined guidelines.
Lender may enter or re-enter auto lending market with controlled risk.
Four Service Tiers
Credit Union Listing (pre-populated database)
Credit Union Subscription
Auto Loan Underwriting for Credit Unions
Delegated Lending for Credit Unions