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WEST PALM BEACH, Fla. – Indirect lending came into its own for credit unions in 2004, so much so in fact that NCUA issued a Letter to Credit Unions in September cautioning CUs about the risks involved with this specialized lending activity. Callahan and Associates research shows from the first quarter 2004 to the third quarter, total indirect loans outstanding for all credit unions nearly doubled, increasing from $26.86 billion to $50.24 billion. As a percentage of credit unions’ total auto loan portfolio for the year, indirect loans comprised 19.4% in the first quarter and 31.8% by the third quarter. Recognizing the increasing popularity of indirect lending among credit unions and the tangible benefits -increased loan volume, a source of new members – NCUA in its Letter to Credit Unions 04-CU-13, advised CUs that indirect lending “can lead to rapid growth, changing the structure and risk profile of a credit union’s balance sheet quickly.” Among the steps the agency recommended CUs involved in indirect lending or considering it to take were: periodically reviewing approved dealers to make sure they meet certain standards and they’re not using “excessive sales pressure” on borrowers to increase their sales volume “which could result in lower credit quality for the loans presented to the CUs”; conducting an on-going review and monitoring of individual dealer loan statistics to ensure the dealer is in compliance with the CU’s credit criteria. NCUA also recommends CUs have written contracts with dealers that address “at a minimum” dealer compensation, credit criteria, documentation standards, and dealer reserves. -

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