Tighten Auto Tracking, Warns Biernacki
LAS VEGAS -- Credit unions risk being outmaneuvered by big banks and the captives if they fail to tighten up their tracking and monitoring of auto loan data, a leading indirect lender, Larry Biernacki, president/CEO of the $509 million Arkansas Federal Credit Union, Jacksonville, Ark., warned last week.
By keeping closer tabs in such areas as dealer performance, borrower scores and loan terms, CUs stand a much-improved stance of beating back competitors "if they have a realistic idea of what is really happening in their shops."
"Keep track of everything," stressed Biernacki suggesting many CUs are lax in comparing and analyzing data affecting their loan operations in such areas as collections, scoring standards and even "what is the definition of bad--is it 60 days, 90 days, charge off or what?"
Biernacki made his remarks here at the opening day session of the annual Auto Lending Symposium of Credit Union Direct Lending Corp., Rancho Cucamonga, Calif.
Amidst what he said is a shrinking auto loan market in which CUs are "treading water," many CU portfolios are failing to grow in a period when all lenders tend to be more aggressive in their buying practices and also taking on additional risk.
"The successful organizations understand this and take steps to manage the risk," the Arkansas CEO claimed.
Managing risk "is what we are paid to do" Biernacki told the CUDL audience arguing CUs should be monitoring their portfolios by dealer, loan officer, loan terms, advances, grade, and credit scores. "If we do not manage the risk in our portfolios we will not know the long term viability or profitability of this delivery channel."
As an example, he said, a CU may track its portfolio by the assigned grade, but "does the organization know how the portfolio performs to national standards? Does the organization know how many, if any, exceptions are made?"
Using more traditional and accountable methods, like credit scores, allows the lender to compare how his portfolio is performing to empirically derived score models, he said.
"It allows the lender to know how their scored portfolio performs against what was expected," he said. "Then and only then, can a credit union take steps to ensure the continued success of its program."
If a CU does not monitor performance and "continues to do the same thing but expects different results, well that is insanity," he said.
In managing risk, pricing becomes critical and risk based pricing "assumes you are being compensated for the additional risk of a 680 score versus 720," he said.
"Yet, most credit unions may not have done the analysis to see how they are doing," he said. "In credit scoring every 20 points double the odds so therefore a 680 has a four times greater risk of going bad then a 720.
"How are your loans performing?" he asked. "Without proper tracking you are flying in the dark and even worse you may not know that a segment of your portfolio may not be delivering the return you expected. "