CENTENNIAL, Colo. – Centrix Financial concurs with NCUA Board member Debbie Matz's recent comments cautioning credit unions on their involvement with third party indirect auto lending vendors and also agrees due diligence is key to specialized lending activities. But while seconding Matz's argument, Centrix Financial EVP Legislative Affairs Geoff Bacino stresses that, “Anybody can loan to A and B paper, and sure non-standard can be risky. But if it's managed and overseen properly it can be an effective way for credit unions to add new members and continue serving their existing membership base.” Founded in 1990, Centrix Financial is a leading provider of special finance auto loans, through its Portfolio Management Program (PMP). The company has underwritten more than 125,000 loans totaling over $2.0 billion since 1998. It has agreements with nearly 7,000 auto dealers and over 200 financial institutions. “Credit unions have to do their due diligence if they're using a third party vendor for any type of product to make sure they stay on top of game,” says Bacino. “Credit unions also have to recognize that when we talk about a non-standard member, they're a different breed of cat and credit unions have to be ready to treat them like that. In that sense it's no different than any other part of their operations. “There is just so much A and B paper, and if credit unions want to serve the underserved and what we prefer to call the non-standard borrower rather than the subprime borrower, then credit unions have to be willing to look at alternative lending products and ways of meeting the borrowing needs of these members,” he adds. As proof of Centrix' commitment to due diligence, Bacino said the company requires every credit union coming on to its program to attend a two-day due diligence seminar in Denver offered by the company which he says covers everything about the Centrix Financial program and business model such as how loans are underwritten and the company's collection methods. Regarding Matz's assertion that “credit unions should never delegate loan authority to a third party vendor” and her concerns that third party vendors are not using their CU clients' underwriting standards, Bacino concedes that Centrix Financial uses its own underwriting standards, “but we're willing to tweak them if a credit union needs us to.” Each credit union doing business with Centrix Financial can choose not to accept the company's underwriting standard, he says, “but if they don't want to accept them they have to do the loan on their own.” Bacino defends Centrix Financial's policies, saying, “If you want to get involved with the non-standard borrower, we say these are tried and true underwriting standards. We've been doing this for seven years and have a good track record. Every credit union on the Centrix program has made money, none have lost money. I don't think you could say that about all credit unions that manage their own indirect lending programs.” Credit unions need to realize, says the Centrix Financial executive, that the C and D borrower is the fastest growing segment of the lending community. If credit unions are going to say they want to get involved serving these borrowers, then they need to understand who these people are. As well as who they're not, Bacino emphasizes. “The stereotype is they're someone who's a deadbeat and not willing to work. In fact, the typical non-standard member is someone who's lost a job or been affected by health-related insurance problems or marital problems. The overspender is the exception, not the rule.” The bottomline, says Bacino, is “good people sometimes find themselves in unfortunate financial circumstances. By lending to these members we're telling them maybe they've had a problem in the past, but we want to help them get back on the road to financial health. When we're considering making a loan to members like these, we want a member who is trending up – they've worked at a job a long time and they're making inroads into paying off unsecured debt. There are plenty of borrowers like these out there for credit unions to serve.” Bacino agrees that lending to the non-standard borrower involves higher levels of risk, “but that risk can be overcome,” he says. One way is to have a good collection method. Without that, he said, the lender runs the risk of not getting members to make their loan payments. He says Centrix also mitigates risk to credit unions through the company's insurance policy. When Centrix approves an auto loan for a C or D borrower, Bacino says the company contacts the member by phone to welcome them to the Centrix program and explain what's expected of them regarding loan payments. According to Bacino, Centrix Financial approves one in 10 loans. As for the loans the company rejects, Bacino says the dealer can make the loan or “peddle” the loan to other financial institutions. “You can't kid yourself, you just can't make a loan to everyone. It's a business decision every credit union has to make,” he says, adding, “A credit union has a right to turn down any loan we send them. The final decision is always the credit union's.” In the end, says Bacino, each credit union should be comfortable with the loans it makes. Credit unions need to be constantly vigilant with all vendors they're doing business with, he advises. -

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