LOS ANGELES - Water and Power Community Credit Union's relationship with CU Direct has helped the $420 million CU fund indirect auto loans for members out of its main office in Los Angeles. But when Robert Mims and Erwin Ortega learned just how many first-time borrowers of Latino heritage near the CU's Montebello branch depended on high interest rate finance companies to buy cars, the two of them decided the CU needed to supplement its indirect lending relationship with an auto dealer network of independent dealers of its own.

Three years after forming its Auto Dealer Network, Water and Power Community CU counts 70 independent dealers in the network. Loans funded through the network are predominantly for used vehicles, and the average size is $12,000 for a five-year loan.

Since 2003, the Montebello branch where Branch Manager Mims and Assistant Branch Manager Ortego work, has funded more than $35 million in auto loans through the Auto Dealer Network, primarily to low-income, first-time borrowers.

Water and Power CCU's Montebello and Northridge branches were both opened in 2002. From July-December, Mims said auto loan production from the branches "wasn't significant, so Erwin and I brainstormed what we could do."

He continued to explain that the community around the Montebello branch is about 95% Latino and many of the residents didn't have a relationship with a financial institution, but relied instead on financing of about 14%-15% from high interest-rate lenders.

In addition, because of their lack of credit history, most of the residents looking to buy a vehicle relied on the independent dealerships in the area, most of which aren't part of the CUDL network.

"We've told the independent dealerships that since we can offer the member a better rate on their car loan than they were getting from the other lenders, they can afford to buy a more expensive car if they want. Of course the dealerships like that, and that's why they've joined our network."

By reaching out to the Hispanic community, says Mims, "The cultural connection has contributed to a deeper sense of community between the credit union, our members and the auto dealers."

Ortega explained that each credit application the Montebello branch receives for a car loan is very unique, and the loan officers look at all facets of each application to determine what the credit union can do for the member.

"Sometimes a member thinks they can borrow $20,000. We tell them we can't do that, but we can lend them $12,000, and then we help them find a vehicle they can afford. If there's room to help someone, we do," he said.

He added when the Auto Dealer Network was first launched, the Montebello branch offered a program for first-time borrowers that allowed them to qualify for $15,000 and the CU to underwrite applications for residents of the community who didn't meet the typical credit criteria. Ortega said the CU doesn't offer that program any longer, "but we still try to help first-time borrowers. We may require more downpayment on a vehicle or a co-signer on a loan."

When Mims and Ortega first formed the Auto Dealer Network, the two expected to visit with 20 dealers and get one or two contracts a month from them. But the program got off to a fast start, and it didn't take long for the branch to find itself receiving six or seven loan contracts daily.

"After that, a lot of the independent dealers who network with each other at the car auctions began to spread the word about the network among themselves, and soon they were calling us to join. So it grew due to word-of-mouth advertising. Now we often find ourselves processing up to 10 applications a day," said Mims.

Despite the popularity of the Auto Dealer Network among independent dealers in the area, Mims and Ortega screen dealers who want to join very carefully including things like visiting their site and inventory, checking their paperwork, license and the dealership's surety bond for vehicles. They also investigate the dealership's owners and get references.

"The problem for the independents was there was a lot of fraud that went on that we were aware of. We told them we'll help them match a car buyer with their vehicles and assist with the financing, but we won't tolerate falsification of information. We tell them we don't want them to lie because we're going to build a long-term relationship with them," said Mims.

The two staffers say they're satisfied with the number of dealers in the network now-of the 70 dealers 20 are the most active.

"When we first started the Auto Dealer Network, we found a lot of people in the community didn't go to the big banks for auto loan financing and didn't know what the credit union was about even though we had a branch in their community. Many of them never had a relationship with a financial institution before. Now they've become our members, and we're helping them get car loans at more affordable rates while offering them other credit union services," said Mims. [email protected]