Out of Indirect, St. Paul CU Gains Income on Dealer 'Referrals'
By JIM RUBENSTEIN
CU Times Senior Correspondent
ST. PAUL, Minn. -- Three years ago the $1.1 billion Affinity Plus Federal Credit Union here made headlines when it exited indirect lending because it wasn't drawing solid member accounts, but today the St. Paul credit union is proud of what it did do: raise thousands in fee income from dealer referrals.
The unusual referral program involving six Minnesota dealers who pay the CU anywhere from $240-$300 for every member contact sent their way "is the ideal way to put our philosophy to work, that the interest of members comes first," explained Kyle Markland, president/CEO.
The "preferred dealer" arrangement, started six months ago, represents a reverse twist on traditional indirect practices considering most CUs and banks end up paying the dealer fees for auto paper in addition to taking on the loans.
Augmenting the Affinity package, run out of the CU's "Auto Center", is a "concierge unit" of CU staffers who assist members with their auto purchases including home visits.
Based on the early success of the program, Markland said plans are to "double the number of participating dealers" by yearend to cover a larger portion of the state beyond the Twin Cities. Affinity with 128,000 members has 22 branches in Minnesota.
"So far our dealers are really thrilled with this program and so are the members who like the idea that someone at the credit union is looking out for them," said Elizabeth Hayes, senior vice president and chief relationship officer.
As testament to the acceptance, "we had one member who came into Maplewood Toyota, got a deal, took out a loan and then his daughter and another member of the family got deals, took three in one afternoon," said Hayes. "Can you imagine how happy the dealer was and so was the member?"
That scenario followed a successful car sale held last month in which the CU financed 110 cars worth $2 million during a three-day period.
"That's pretty good when you consider during a 60 day period back a few years ago we sold 80-100 cars financing $1.5 million and paid the dealers a fee for each sold and they sold all their insurance products," said Hayes.
CU staffers are careful in selecting dealers for their preferred program doing on-site interviews to make sure "members are working with someone we feel has their best interest in mind," said Hayes.
Typically, the CU starts working with those members who have had a good experience already with specific dealers, said Hayes, and "then we have a meeting with the manager as well as the individual who will be working with our members to outline the quality parameters."
The dealer rep named to "partner with our members and our employees is typically the most experienced sales person with most being lease managers," said Hayes.
"Those dealers known for 'bait and switch' tactics on auto price, financing and insurance, anything to get a deal done, are not welcome in our program," she said.
Every market has those kinds of dealers and ordinarily most CUs or banks "know who they are," she said.
"Once the car selection is made, the Auto Center staff," she said, accompanies the member to the dealer with employees acting "as their advocate in ensuring the member is getting a good price on the vehicle, which typically results in being a higher value than they would receive elsewhere."
"Once the vehicle is ready to be delivered, Affinity Plus staff will deliver the vehicle to the member at their home, work or wherever is most convenient," she said.
In its agreement with dealers, Affinity Plus stipulates that "the best insurance product" between dealer and CU is the one to be offered.
"In most cases, the Affinity Plus insurance offering is the best quality and price," said Hayes though in a few cases, some dealers have better deals and "so we agreed our members should be offered their product instead."
In expanding the preferred network, Affinity Plus said its next move outside of the Twin Cities will be to sign up dealers "where we have a strong working relationship" noting one locale being worked on now is in Bemidji, in the northern part of the state.
Officials of two major indirect firms with large CU clientele, DealerTrack of Lake Success, N.Y. and Credit Union Direct Lending Corp of Rancho Cucamonga, Calif., said they were unfamiliar with the preferred program, but were cognizant of Affinity Plus' withdrawal from the indirect market.
Frank A. Noto, director of lender sales and development for DealerTrack, said his firm had on occasion "reached out" to the St. Paul credit union that had "been in and out of indirect for the past couple years."
Discussing the overall CU market, Noto said "our progress remains extremely positive", adding that "over the past 16 months from January 2006 to April 2007 we have connected 97 credit unions with only two exiting the indirect business."
Callahan & Associates data, he said shows that indirect lending as a percentage of total loans at CUs has risen from 2004 at 29.6%, 2005 at 35.3% and 2006 at 38.6% and that the CU market share has climbed from 15.2% in 2002 to 16.7% in 2006.
Joe Greenwald, vice president of marketing at CUDL, said that among CUs over $50 million in assets, the percentage with indirect programs has grown from less than 42% in 2002 to over 63% in 2006.
Moreover, for the 12 months ended in December, CUs with indirect showed share growth of 5.65% compared to 4.07% for those without indirect programs, he said.
Affinity Plus CEO Markland, and other officials of the CU, insisted they have no regrets at leaving indirect and that its preferred program has provided more evidence their CU can be a true member advocate.
Markland along with Hayes and others at Affinity Plus detailed their referral program at a breakout session on member growth during the annual meeting of the Minnesota Credit Union Network held April 13-14 in Bloomington.