As Banks Brake, Credit Unions Gain Bigger Share of Auto Loans
Credit union lending rose 11.8% in April with new car loans and member business loans growing twice as fast as other sectors, CUNA Mutual Group reported Thursday.
Real estate grew at a slower pace as higher interest rates discouraged refinancing and purchase loans and home equity lines of credit have not risen enough to make up for the difference. As a result, real estate’s share of the $921.4 billion in total loans on the books April 30 fell by a percentage point to 49%.
Like CUNA’s Economic Update Tuesday, CUNA Mutual Group’s monthly Credit Union Trends Report raised the likelihood of a recession. “We expect the economy to grow 2.3% during 2017 and 2018 with an economic contraction anticipated in 2019,” the trends report said.
For now, the trends are good. The report showed credit union total assets were $1.38 billion as of April 30, 8% greater than a year earlier. Loans in every category increased from a year ago:
- New car loans grew 19.9% to $126.7 billion.
- Used car loans grew 13.5% to $195.1 billion.
- Credit cards grew 7.4% to $52.4 billion.
- First-lien mortgages grew 10.3% to $369.3 billion.
- Second-lien mortgages grew 6.8% to $82 billion.
- Member business loans grew 23.4% to $71.9 billion.
New car loans' share of total credit union loans grew 93 basis points to 13.75%, while used car loans' share grew 31 basis points to 21.17%. The Fed’s latest quarterly statistics on car loans show credit unions held a 28% share of the U.S. auto loan market in March, up 2 percentage points from a year earlier.
Credit unions are gaining in new car loans as banks braked on all classes of auto loans, not just subprime loans where delinquencies have spiked, said Michael Cochrum, vice president of analytics and advisory services for CU Direct, a Los Angeles CUSO.
Banks pulled back as used vehicle values are falling and seen as likely to fall at an even faster rate as a large number of vehicles come off leases in the next two to three years, depressing prices in the used car market and ratcheting up the loan-to-value ratios of auto loan portfolios, Cochrum said.
There is also an expectation that the new car market is coming off its recent peak, and slower sales years are ahead, he said.
“Some of that backing off is simply a changing focus that may be a little ahead of the market,” he said. “I think it’s a natural pause in the cycle.”
The nation's 5,926 credit unions had 111.2 million members in April, 4.5% more members than a year ago — “the fastest pace in the modern credit union era,” according to CUNA Mutual Group.
“Credit unions should expect membership growth to exceed 3.5% in 2017 and 3% in 2018 as the economic expansion and credit demand continue for the next two years,” the report said.