Not too long ago a credit union could easily compete in the auto indirect lending market with a consumer credit report and a fax machine. It was simple for a credit union to set up an indirect shop, dedicate a few staff members and enroll dealers within a close proximity to the credit union. Looking back, I can safely say that we were extremely limited by reach and technology. In my past 12 indirect lending years, I have seen extraordinary changes with this type of lending program; some developed from demand and some derived by necessity.
Today's credit union indirect lending offers numerous loan processing systems with robust decision engines and nationwide networks for receiving loan applications. Credit unions also have many choices when it comes to integrating indirect lending into their loan acquisition strategy; an in-house program, contract with a third party noncredit union owned vendor or even consider forming or joining a credit union service organization. Clear advantages exist with some of the available options and great disadvantages with others.
Whether joining a CUSO as a client or an owner credit union, the most obvious advantage is the group's leveraged buying power for acquiring the leading technology needed to drive a successful indirect initiative. For some credit unions, simply from an economies of scale position, it can be very cost prohibitive to provide the dealer with the ability to effortlessly and at no cost submit loan applications to the lending platform. Additionally, rapid loan decisions, processing and funding may be beyond the economic reach of many credit unions.
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There are many more benefits to working within a cooperative CUSO, but I think one that is regularly overlooked is what we refer to as "dealer reach." For a single credit union attempting to administer an indirect program, dealer reach can be very difficult to obtain. Dealer reach is a reference based on both an enrolled and cultivated dealer network. When a credit union works within a CUSO they expand the network of enrolled dealers and have a greater chance of capturing loans outside of their traditional geographic business area. Also, within a CUSO where all credit unions participate on a level playing field, the value proposition for the dealer to utilize that program increases.
Dealer reach is even more important these days, especially with more employers enabling a telecommuting work force to set up an office at their home and the ever expanding suburban sprawls that surround many car markets. If you want to reach your member, it is wise to partner with a CUSO who can offer you dealer relationships far beyond your traditional market reach. Studies indicate that 89% of consumers complete their loans at the dealership, primarily because of convenience. By being at the point of sale in many dealerships, you will be more convenient for your member when it comes to financing their next purchase and greatly increase your chances of retaining their loan.
Some CUSO indirect service providers have dealer representation and utilize the latest lending platforms and loan origination tools. By providing the dealers with competitive rates, fair dealer fees and the most widely used lending platforms you can rapidly overcome many hurdles encountered by credit unions involved in indirect lending. Having the ability to service broad market areas and utilize a CUSO's resources are not an option for successful indirect lending, they are a requirement.
Let's talk about technology for a while. Can it really help that much? Will it make a substantial enough difference? Absolutely! The sooner you can respond to an application submitted by a dealer, the more likely you are to receive the loan, regardless if it's for a new or current member. The industry standard for responding to a dealer submitted application is 30 minutes, but many Indirect Lending CUSOs now average less than 15 minutes. How do they do it? Simple. When multiple credit unions collaborate, resources and buying power can be pooled and the group can capitalize upon the technology and systems that will place them in the same competitive advantage like most of the nation's largest banks, finance institutions and captives.
Another example of how being part of a multi-group CUSO would favor a credit union would be if a single credit union has a fraud issue or problem with a particular dealership, the dealer may be slow to react to their demands or even drag the issue into a costly legal battle. With the CUSO multi-credit union muscle, the dealer is more apt to react in a swift manner to resolve the problem, lest he lose the opportunity to conduct business with all the credit unions in the CUSO. By partnering with a credit union-owned CUSO for indirect lending, you can have peace of mind that your institution's best interests will be placed ahead of the possible impact these types of issues may have on the dealer relationship. In conclusion, a CUSO provides the foundation for credit union collaboration and teamwork in the competitive indirect auto-lending marketplace. A CUSO, which encompasses several credit unions, can encourage dealers to provide credit union client members with preferred pricing, a better car buying experience and a safe member-lending harbor.
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