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RANCHO CUCAMONGA, Calif. – What makes for a successful indirect lending product? Credit Union Direct Lending used the backdrop of its recently held annual Auto Lending Symposium in Las Vegas, Nev. to recognize seven credit unions in three asset groups for their best practices in four areas the company considers key to running a successful indirect lending product – dealer relations, member awareness, portfolio management and innovation. But of the four, winning CUs say dealer relations is the most key, and the area CUs tend to be the weakest in. Building relations with dealers is key to the success of any indirect lending program, said Dennis Flanagan, executive vice president of Great Basin FCU, and any credit union involved with this type of lending has to make sure it has the tools in place to ensure this can happen. Great Basin, like Portland Teachers CU, is a two-time winner of CUDL’s best practices award. Both credit unions also won in 2001. Flanagan was instrumental in getting the $70 million CU on the CUDL program. He said the credit union previously only offered direct auto lending but estimated it was losing about 50% in auto lending opportunities from its members to dealers’ finance and insurance departments because it didn’t offer indirect lending. Great Basin was one of the first credit unions from Northern Nevada to join CUDL. It made its first CUDL loan in September 1999. In June 2002, Great Basin did about $3.4 million in CUDL loans. It’s done nearly $15 million in CUDL loans year-to-date, and $18 million in all auto lending. “Misunderstandings go both ways,” says Flanagan. “We’ve taken our share of bumps and bruises from dealers over the years, but we haven’t let that dampen our attitude towards indirect lending. You have to know who you’re dealing with, and you find out very quickly if you’re working with a bad dealer or a new F&I person who’s not aware of the dealership’s relationship with the credit union. “There are good dealers, and there are some not so good dealers,” Flanagan admits. He said Great Basin does about 80% of its indirect lending business with about a half dozen dealers, even though it has access to about 40 dealers. He added that there are a couple of dealers Great Basin will not work with at all. “By being direct with dealers and not beating around the bush with them, that let’s them find out very quickly who they’re dealing with,” said Flanagan. Flanagan describes Great Basin’s relations with auto dealers as “ying and yang,” and he stresses that, “You have to work with them and be candid and on top of them. They have to understand who you are and who your underwriters are.” The most common problem Great Basin has had with dealers is on the valuation of vehicles, where the vehicle doesn’t have for example custom features the member is being charged for. What does Great Basin do in situations like these? “We tell the dealer to take the vehicle back or else we’ll report them to the Attorney General’s office. When you do that a few times, they take you seriously,” said Flanagan. There have also been instances when dealers have sent Great Basin a member who had a poor credit history who wanted to borrow money to purchase a vehicle. “We tell them we’ll be fair and consistent with them, but if you send us people who are delinquent and have poor credit, then we will come down on you hard,” said Flanagan. Great Basin’s Business Development Marketing Manager Susan George also visits with the dealers the CU does business with once a month, and more often with the CU’s top five dealers. She described the exercise as an opportunity for information building and a way to keep a CU face in front of the dealers. Jennifer Thalhamer, vp products and services for CUDL said, “Dealer relations is one of the first elements a credit union has to master if it wants to have a successful indirect lending program.” She added that, “The partnership has to be a mutual relationship.” CUDL, said Thalhamer, is well aware of some CUs’ trepidations about getting involved with indirect lending, and the company is sensitive to CUs’ attitudes towards dealerships as being their competitors, not partners. CUDL regularly holds training sessions for dealer and credit union account representatives to help both groups work on building relationships. “Credit unions have to realize that dealerships are for-profit businesses. But the dealerships also have to understand that credit unions, because of their relationships with their members, can help drive members to the dealer sites and this can be crucial to the success of the programs,” said Thalhamer. The CUDL program includes 1,521 dealerships and 215 participating CUs in eight states including California, Nevada, Oregon, Washington, Texas, Massachusetts, New Hampshire, and Rhode Island. – [email protected]

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