NCUA Warns CUs About Perils of Indirect Lending
The NCUA wants credit unions to exercise significant care when making loans in partnership with third party vendors or organizations.
"NCUA examiners are reviewing Call Reports for increasing amounts of repossessed autos or increasing indirect lending delinquency and loan losses," the agency wrote in an August letter to credit unions on the topic. "In addition to those obvious danger signs, examiners are also looking for other warning signs or red flags that may require a credit union to slow down indirect lending."
Some of the red flags include having a high concentration of indirect loans to total loans or net worth without adequate controls in place; tying loan officer bonuses to indirect loan volume incentive programs and not performing adequate analysis of overall indirect loan portfolio performance.
"Credit unions should regularly test for compliance with the contract terms by comparing delinquency, loan losses, and rates of return to previous results and budget levels," the agency instructed. "These statistics and those from the static loan pool analysis should be compiled for each vendor and the overall program. Credit unions should implement changes based on the analysis of the program and individual vendors participating in the program," the NCUA added.