When a teacher recently sought relief as she struggled to makethe $500 monthly payments on her Volvo, Carolina CooperativeFederal Credit Union felt it had just the solution she needed.

Through a partnership with Enterprise Car Sales, the $43 millioncredit union in Charlotte, N.C., launched what it calls its “BasicTransportation” program. Enterprise markets the service as “VehicleConnector.” Credit unions, which can qualify members regardless oftheir credit score, help borrowers select a car that meets thebuyer's needs and price range. Enterprise pays Carolina Cooperative$250 for every loan approved. The credit union charges a 15% rateon all car loans, which are geared toward members who have lessthan stellar credit.

That teacher, who had a history of late payments, was able to goto an Enterprise lot, select a cheaper vehicle and reduce hermonthly car payment by $200, said Paris Aranguiz, CEO of CarolinaCooperative.

“For some of these members, this is their last alternative,”Aranguiz said. “They've suffered some really bad losses.Occasionally, they are upside down with their loans. For a lot ofpeople, their credit has declined over the last three years.”

The members using the program run the gamut from teachers toemployees in manufacturing and textile plants, Aranguiz said.Generally, they have D and E credit. To qualify for a BasicTransportation loan, a member must have enough income to still paytheir bills if they are approved. The credit unionincome-to-expenses ratio is 45%. The applicant must also beemployed and a member of Carolina Cooperative for 12 months. Onlyused cars in the $12,000-and-under range are sold. Aranguiz saidpreapprovals tend to fall in the $8,000-to-$10,000 span.

Meanwhile, the economic downturn has led to a variety ofscenarios that have caused consumers to fall behind in their carpayments, said Ro Wilson, group business development manager forEnterprise Car Sales in North Carolina. Pay cuts and unemployedspouses are just a few of the more common scenes from memberscoming to Enterprise's lots looking for cheaper trade-ins, headded.

“We see many people that were taken advantage of [through badfinancing],” Wilson said. “They're still trying to recover. Somenever get out of the hole.”

Aranguiz said the credit union has approved more than 150retooled car loans since it launched its Basic Transportationprogram more than a year ago. The 15% rate that members are chargedhelps to cover any potential losses. So far, Carolina Cooperativehas had only one, a loss of $2,000. That's a far cry from the$5,000 to $10,000 typically seen with vehicle repossessions by wayof indirect loans, he noted.

The Basic Transportation program is an alternative to indirectlending, Aranguiz offered. He's not a big fan of this type oflending in part because credit unions often pay a fee to thedealerships they're working with.

“Indirect lending–the problem is it doesn't work properly. It'snot designed for credit unions,” Aranguiz said. “You can reallylose your shirt on it. A lot of credit unions took huge losses.Even in normal times, you're likely to have three times moredelinquencies.”

He acknowledged that when interest rates are low, indirectlending has the propensity to be profitable. However, if ratesstart to rise, a credit union's margin can easily be eaten up. Someare blinded by the amount of revenue brought in the first 12 monthsbut then trouble sets in when the losses start to mount. Aranguizhas seen the fallout at other credit unions he's worked at, andknew coming to Carolina Cooperative that it was not a path hewanted to go down.

The finance companies are no better, he pointed out. Aranguizsaid many of them will charge 25% to 30% on vehicle loans and keepthe keys in case there is repossession.

The $126 million Summit Credit Union in Greensboro, N.C., alsoworks with Enterprise, calling its service the Credit Builder AutoLoan program. Since rolling out to members in October 2010, thecooperative is approving a dozen loans a month, said SamWhite-hurst, president/CEO. A marketing campaign launched threemonths ago has helped pick up activity.

“We felt there was a need for it,” Whitehurst said. “We have thecash to lend. We have the desire to lend and we're doing a lot ofgood for people who need help.”

Whitehurst said the credit union charges a “fair and reasonableinterest rate” that helps pay for default insurance and collateralprotection insurance. The rate allows Summit to take on additionalrisk without jeopardizing the credit union's financials, heexplained. Most of the members are subprime borrowers with creditscores ranging from 400 to 500. Summit has yet to incur anylosses.

Since launching its program, Summit has had to make anadjustment with its marketing efforts. Whitehurst said they didn'trealize that members in the subprime category were not borrowingfrom the credit union. So when postcards went out to this grouppromoting auto loans, there was a little section on them that askedif they knew of family or friends who were having creditissues.

“We didn't want to insult anyone by letting them know they weresubprime,” Whitehurst said. “We always try to qualify members fortraditional financing first. The credit builder program is anoption if they don't qualify.”

Summit has a diverse membership with 150 select employee groups,Whitehurst said. Some subprime members felt like they had limitedchoices such as settling for companies that charged rates north of20%, he noticed.

“We have re-educated them by saying we have something to getthem into basic transportation,” Whitehurst said.