SAN ANTONIO, Texas – Small and mid-size credit unions participating in indirect auto lending through Southwest Business Corp.'s wholly-owned collaborative acceptance corporation, Financial Services Acceptance Corp. (FSAC), will soon have the opportunity to provide loans to less than A paper members.
Founded by SWBC in 1994 by an initial group of five credit unions as an innovative way for small and mid-size credit unions to participate in indirect auto lending, FSAC currently represents nine credit unions – five in Florida, three in Texas, and one in Tennessee – that range in size from $50 million to $250 million.
FSAC brings about $10 million a month in auto loans to the credit unions and buys about $90 million a year in high grade paper for them.
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While larger credit unions are able to enter indirect lending because they can supply the potential buying volume through their large memberships, "Smaller credit unions have not been able to participate because they can't support the numbers dealers need," said SWBC President Gary Dudley.
By acting as their acceptance corporation, small and mid-size credit unions can participate in a portion of the auto lending market they'd otherwise be locked out of, said Dudley.
FSAC takes the loan application from the dealer, verifies the credit history and employment record for the member. SWBC sets the interest rate and approves the loan.
The credit union is only responsible for booking and funding the loan, and servicing it.
By the first quarter of the year, FSAC plans to offer participating credit unions two options that will allow them to buy deeper, not just A paper:
Purchase vehicle indemnity insurance policies allowing them to set their own rates, portfolio the loan and choose whether to service the loan; or
Refer the loan to a non-competing acceptance corporation that's experienced in managing subprime or near subprime paper.
"Credit unions have tended to shy away from servicing subprime or near subprime loans because they require more work and administrative handling," said Dudley. "These options will let them get involved with lending in that market." [email protected]
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