WEST PALM BEACH, Fla. – Credit unions involved in indirect lending know all too well that gaining members through the service doesn't mean gaining quality members. The controversy surrounding these members is familiar in credit union circles – that most members who join a CU at a dealer site through indirect financing don't have a relationship with their credit union beyond their auto loan and maybe a small share deposit account. But CUs are trying to change that paradigm. That is no small task. A white paper released by CU Direct Corp. earlier this year that was developed together with Wescom CU stated that, “One of the greatest challenges marketers face is how to turn these new `auto loan' members into multiple product members/households. These new members differ from traditional members who originally joined your credit union. A one-size-fits-all marketing plan or approach will have little or no success, so trying to use the same approach as you do with traditional members can be a waste of vital credit union resources.” So why should it be so difficult to cross-sell these indirect members? One thing all credit unions that Credit Union Times spoke with agree on is that when it comes to developing quality relationships with members who join up through an indirect loan, it's the CU's responsibility to foster this relationship and not the dealership's nor their indirect lending partnering company's. “New members who come in through indirect lending don't know the credit union. We're just the ones who financed their loan, so it's more of a challenge to sell them on a product we offer that they can get anywhere in town,” says VP of Lending Jim Kelly, Sacramento CU, Calif. The $314 million CU has 8,000 auto loans in its portfolio worth a total $244 million – $115 million are indirect. Of its total 29,000 members as of Sept. 26, Kelly estimated 5,400 joined through indirect loans. Of those, 4,140 are “just straight CUDL” referring to the indirect lending relationship Sacramento CU has with CU Direct. These members, Kelly said, typically have their auto loan with the CU and a savings account with an average balance of $204. With a community charter that includes three contiguous counties in the Sacramento area, Kelly says part of the difficulty with getting the indirect lending members to use more of Sacramento CU's products is they're not geographically located close to the credit union or its branches, so they're not likely to come to the CU for a face-to-face meeting with a representative. Still by immediately assigning the new accounts to a financial services officer in a branch office who begins working with each new indirect lending member as soon as their loan is funded, Sacramento CU has successfully convinced some of them to use more of the CU's products and services. “Most of these people don't know credit unions are active in mortgages and other products. They see credit unions as predominantly doing car loans. But once you have that conversation with them, learn that they need other products and they realize we can offer them, then you're able to do something,” says Kelly. By focusing on getting these members to give the credit union additional auto loan business, Sacramento CU has become their auto lender of choice – many of them have more than one auto loan with the CU – and has been able to penetrate them with other products such as equity lines of credit and second mortgages. A “small percentage” also have VISA card accounts with the CU. “We get these members who initially just want loans with us because of our rates. They tend to do business with banks because they always have. But if we can make a compelling reason for them to move their business to us, they're happy to make the move,” he adds. Ray Springsteen, VP-Member Services, Service CU, agrees that, “It's our job to go back to those members and explain the benefits of belonging to a credit union.” As of the end of August, the $995 million, Portsmouth, N.H.-based CU's $270.4 million total auto loan portfolio included $30 million in indirect loans. Springsteen says the credit union typically funds about $2.5 million in indirect loans a month and the average loan is about $18,000. Typically about 80% of the volume of indirect loans is for new members, he explains, “so we're looking at about 1,200 new members picked up through indirect lending.” Service CU is averaging about 2.4 services for each member/household that joins through an indirect loan. That compares with about five services per household that has a mortgage with the credit union. “With a mortgage the member is spending a lot of time with a Service CU representative so we have a lot of time to become familiar with their needs and find out their goals. With indirect lending we don't have that face-to-face interaction,” says Springsteen. That makes it all the more important, he says, to make contact with these members as quickly as possible and follow up with them with phone calls and a letter. Service CU is also a military credit union and has branches and members throughout the U.S. as well as worldwide. That means the credit union works with dealers in various states. Springsteen explains that Service CU has some very specific products just for its military members, “so we cross-sell the military-centric market. That adds benefits to that relationship.” “Many of these members have accounts with other financials, so the challenge is to find ways to make it easier for them to open an account at Service,” says Springsteen. One of those ways is giving members $50 to move their checking account over to the CU. In addition, in the next couple of weeks, members will be able to open a deposit product at Service CU over the Internet. The CU will be using an online application from technology firm Andera that validates identities and allows new or existing members to move money into an account at the credit union. “Indirect lending may bring us new members, but it's up to us to cultivate those relationships,” says Springsteen. CoastHills CU President/CEO Jeff York stresses that, “We see people come in to the credit union and join to take advantage of loans specials we're offering, but that's different because they've made the effort to come and join. It's different for members who join through indirect lending because they didn't really come in through the door and ask for us. It's up to the credit unions involved in indirect lending to build relationships with these members.” Because of the way these members wound up joining the CU, CoastHills initially views them as being customers instead of members. That remains until the member uses other products from Coast Hills beyond just the auto loan and share account. “You have to get another product in their hands,” York adds. “And the key to that success is getting the member to feel an affinity with the credit union in some form or fashion. Building affinity is crucial. “We realize that for some members who just need a car loan with us, their relationship with us is just going to be short term. It comes down to what the member needs. We're talking about sales here, and you have to be willing to accept that you're not going to be successful on every sale. If something doesn't work you have to be willing to try something new,” says York. Premier America CU has learned all too well the value of proximity to a CU branch when it comes to cross-selling to indirect members. VP of Operations Marti James explained that when the CU conducted an outbound telemarketing campaign this past summer to promote the CU's products it got about a 20% acceptance rate from members within a five-mile radius, but had little or no success beyond that distance. Premier America'community charter includes the San Fernando Valley and parts of Ventura and Los Angeles counties. Senior VP of Lending and Technology Marge McNaught agreed that “the farther away the individual is from a branch, the lower the response rate you'll get to cross-selling efforts. It's like making a cold-call to a non-member and trying to get them to join the credit union.” “Even with online banking, a lot of people still like to know they can easily get to a financial if they need to. It's like a security blanket,” she said. -

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