SAN ANGELO, Texas – About 50% of the auto loan applications that come through 1st Community Credit Union's indirect lending program are denied. Probably 20% of the credit union's "direct" auto loans get a thumbs-down. As far as the credit union is concerned, those percentages are too high, because denials encourage members to take their business down the road. That's why 1st Community is adding a new direct-lending referral program for sub-prime applicants to its three current levels of auto lending: prime credit, limited credit/first-time buyer, and credit challenged individuals. Offered by Dallas-based Institution Solutions (ISI), CU Car Loans offers credit unions and their sub-prime applicants another financing alternative. "We believe this will be a good service. It represents potential for members and fee income. We are going to test it through our indirect lending program, and then introduce it to the rest of the membership," said George Sweet, 1st Community president. ISI developed CU Car Loans by partnering with Road Loans, a national company that specializes in financing for the non-prime and sub-prime segments. ISI is a third-party administrator of programs designed specifically for credit unions. "The first priority is getting the member the loan they need in a manner that empowers them as consumers," said ISI President Paul Clampitt. "Often members who must get financing elsewhere are treated poorly or degraded due to their credit scores. Secondly, we want members to go to their credit union to find lending solutions and not to competing lenders." Credit unions can submit online loan applications on behalf of their members or members can apply by themselves by hitting a link on the credit union's Web site. Applications can also be submitted by fax or 800-number. If the loan is funded, the credit union earns a one-time referral fee. "The most important job is to get loans on the books, said ISI's John Fritsche. "Some people think, `If they can't qualify for the credit union's loan, why would we want them.' This is not aimed at people who have perpetual credit problems. The sub-prime market today is not all that you expect; it includes many white-collar employees who have been laid off, etc. Road Loan parameters include: 1) Make $2,000 or more monthly income; 2) Not currently in bankruptcy; 3) Loan amount on vehicle between $7,500-$50,000; and 4) Vehicle 5 years old or newer." "It wears well on the credit union when they can say, `Here's another shot at this loan. We have a partner we work with and you may qualify. May we forward your data?' The credit union is totally out of it at that point," Fritsche continued. "It's a referral – but you've gone the extra mile for that member. You've credit unionized the connection. This is a niche market for credit unions who want to help members they're having to turn away." In the past, the focus generally has been on indirect lending (which may not be that successful in converting borrowers to PFI customers) or insurance programs to cover bad loans. CU Car Loans is not an insured loan program, Fritsche said. "The emerging profile of credit unions interested in this product are not those with huge indirect lending programs, but those where direct lending makes up most of the business," Fritsche said. Credit unions always ask me three things," said Fritsche. "1) How will Road Loans treat my members, 2) Will they try to sell them any other products/services, and 3) Who is Road Loans?" "The answers are: 1) Excellent. Road Loans has won an award for its `concierge' service. It goes beyond providing financing for the member. The loan specialist works closely with the member to help them get the best deal by recommending web sites for research and advising the best negotiating strategy at the dealership. Members may also consult their loan specialist to verify the fairness of their deal. Loan documents are generally sent out that day with pre-approved check amount. The borrower writes a draft on spot. 2) No, they will not sell other products or services. 3) Road Loans is the Internet direct-lending division of Triad Financial Corporation. The program, implemented by several Texas credit unions to date, now is available in most states nationwide. -

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