CUNA Conference Debate Changes Minds on Indirect Auto Lending
NEW YORK — Indirect auto lending and the growth it brings isn’t a new topic, but a July 1 breakout session at CUNA’s America’s Credit Union Conference utilized relatively new technology that allowed audience members to voice their opinions. The debate, which was moderated by CUNA Mutual’s David Polet, included distribution of audio response keypads that revealed the audience changed its attitudes toward indirect lending following the debate.
Jim Holt, president/CEO of the $209 million MidAmerican Credit Union of Wichita, Kan., faced off against Dawn Brummet, vice president of consumer lending at the $1.5 billion ORNL FCU of Oak Ridge, Tenn. Holt took the traditional position that most indirect lending programs are not good for members or credit unions, while Brummet argued in their favor.
Brummet said credit unions need to get beyond the stereotype of the shady auto dealer.
“If anyone can relate to a disservice of a poor reputation, it’s financial institutions post-recession,” she said. Just as credit unions sometimes get included in negative talk about banks, she said, many auto dealers are unfairly given poor reputations based upon the bad actions of a few.
Brummet additionally argued that indirect lending doesn’t require credit unions to give up power to dealers during the transaction. Instead, she said, the programs empower members to get a loan when and where they need it. The key is to manage indirect lending relationships as closely as credit unions manage any critical vendor relationship, giving it the same level of due diligence.
“What is the delinquency rate for loans closed out of the dealership?” she said. “What are the charge offs? What does that paper look like? You never give up control of underwriting. If you don’t want to take on too much risk, don’t put it into your underwriting. With the proper controls, indirect lending can not only be good business for members, it can be good for you.”
Holt disagreed, saying it doesn’t seem like good business to send members into a high-pressure situation where they are sold a car and other products that may or may not be a good financial decision.
“I don’t know how often I’ve heard dealers chuckle about how 0% brings people in, but few go home with that rate,” he said. “But, they all go home with a car.”
Holt, who admitted his credit union has an indirect lending program that includes 300 dealers – but has also cut ties with just as many due to shady business practices –also questioned whether members obtained from indirect lending are “the kind we want.”
They absolutely are, Brummet countered.
“I hope any credit union that wants loans wants these people,” she said. “These are people who live in your community.”
Additionally, Brummet said, indirect lending is a way to introduce credit unions to people and expand the industry’s market share.
“We heard earlier today from Bill Cheney that we have an obligation to extend the credit union movement to people who don’t know us,” she said. “If that first introduction is an auto loan from the credit union, we should do that.”
“I doubt you want your first experience with the credit union to be the car finance guy,” he said. “I want members who come into the credit union to meet my employees, who have been properly trained to meet their needs,” he said.
Using the keypads before the debate, 56% of audience members said they somewhat or strongly agree that indirect lending programs are member focused, while 30% disagreed and 11% were undecided. Following the debate, however, the number of attendees who agreed increased to 77%. Only 19% still disagreed indirect lending is bad for credit unions, and 5% were undecided.