DENVER – 2005 is only three months old but indicators suggest this may just be Centrix Financial LLC's year. At a time when NCUA has cautioned credit unions of the risks involved with indirect lending as more CUs offer the lending service and some credit unions question just how sound it is to make auto loans to so-called sub-prime borrowers, sub-prime auto lender Centrix Financial LLC started 2005 at the same fast pace it ended 2004. In January the company used the NASCAR Nextel Cup Series to launch its pre-approved direct program and its first marketing campaign targeting vehicle buyers. Members typically have their first encounter with Centrix after they've selected their vehicle at the dealership and are ready to arrange for financing. Under the new program, credit-impaired members will be pre-approved by Centrix before they go car shopping. "NASCAR has about 75 million fans, many of whom we estimate are potential Centrix customers," explains Centrix Financial Chairman and CEO Robert Sutton. "So by having a relationship with NASCAR, we can attract these members and pre-approve them." Sutton says NASCAR research has shown that 72% of NASCAR fans are more likely to buy a sponsor's product than a similar product sold by a company that is not a NASCAR sponsor. So far those numbers are bearing up: Centrix set up a kiosk at the Daytona 500 NASCAR race that was held Feb. 20 in Daytona, Florida to market its pre-approved program, and Sutton said more than 3,000 people attending the event came by the booth to be pre-approved for an auto loan. To underscore its sponsorship relationship with NASCAR, Centrix has become the official auto finance company of NASCAR and is the primary sponsor of a Chevrolet car that's scheduled to race in 10 NASCAR Nextel Cup Series races. The No. 36 car driven by Boris Said, will feature the Centrix company logo. Centrix is also planning a seven-state road show that follows 13 Nextel Cup Series races in 2005. In addition, starting in the second quarter 2005, pre-approved Centrix customers will receive an embossed "power card" for a specific dollar amount that the car buyer can take to the dealership. "Being pre-approved gives the member a certain integrity," says Sutton. "That changes the dynamics of the transaction which is particularly important to members who are credit-impaired." To further solidify its relationship with NASCAR, Centrix plans to link its online advance-qualification program to the NASCAR Web site. Centrix is also discussing with dealers the possibility of offering dealership discounts on parts and services to qualified Centrix customers. Capping off its pre-approval program, Centrix plans to start next month allowing visitors to its Web site to determine how much money they're qualified to borrow to purchase a vehicle. Centrix will notify the visitor by email on the maximum loan they qualify for. The notice will also include a list of dealerships near the consumer's home that offer Centrix loans. "Credit unions lose what we estimate is more than 60% of potential auto loans because of credit impaired members," says Sutton, adding that over 35% of consumers in the U.S. have some sort of impaired credit. "We are serving a market that many credit unions aren't. We're providing a financial product in a safe and sound manner that's also bringing in new members for credit unions," Sutton says. Centrix Financial has originated more than $3 billion representing nearly 200,000 loans, the last $1 billion of which it did in less than the last six months. "We deliberately held the throttle down in the early years of the business to make sure we had the infrastructure in place to handle the volume," says Sutton. "We now have that in place to be able to handle the volume efficiently." Centrix Financial has relationships with more than 200 CUs in 42 states. "We have no control over the names we get from the dealers, they only send us names of non-A or B customers. So it's up to Centrix to run a loan applicant's name through our underwriting system," says Sutton. Sutton is offended by the phrase "sub-prime" to describe the consumers who use Centrix's services "because that implies that these people are sub-human,." "These are basically good people that bad things have happened to," he explains. "Poor credit doesn't necessarily mean that person is a bad member. Centrix Financial provides as safe financial product that allows credit unions to bring in new members by providing them auto loans they might otherwise not get or have to pay high interest rates and fees somewhere else to get." Centrix Financial is looking to this summer to release its Centrix-Fair Isaac customized automated scoring system that will eliminate the need for the company to individually underwrite each loan application it receives. Instead, underwriting guidelines will be pre-scored and weighted, and loan applicants will receive a letter score instead of a typical three-digit FICO score. The soon-to-come automated scoring system will compliment another system Centrix recently launched – LexisNexis RiskWise – that checks information available through public record such as addresses and social security numbers to verify information provided by loan applicants on their applications. Sutton says the delinquency rate of Centrix loans is 3-4% and its annualized charge-off amount is 0.89% which he says is comparable to prime loan portfolios. He stresses that in the Centrix automated scoring model there is no correlation between daily delinquency rate and default. "We try to educate credit unions about how delinquency is a fact of life of this type of portfolio and so it's not necessarily a bad thing," he says. "We have to work on overcoming credit unions' engrained bias on what they consider to be the facts on how this type of portfolio should behave," Sutton adds. Sutton is certain that "among all credit unions there will always be a certain percentage of members who are viable for our program." Still, he realizes that auto loans to credit impaired members do occasionally go to default, just as loans to A and B members do. Sutton looks for three warning signs he says are red flags to anticipating default – late loan payments, the borrower doesn't return phone calls, and the member changes jobs a lot. For those borrowers who are on the verge of defaulting, Centrix's Save Unit program will take on the responsibility of selling the member's vehicle instead of the CU having to repossess it which would further tarnish the member's credit history. Referring to NCUA's concerns with indirect lending, Sutton opines that "indirect lending is not a bad thing, and doing it for special finance, credit impaired members if done right is important for credit unions." -

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