RANCHO CUCAMONGA, Calif. — CU Direct Senior Vice President/Chief Operating Officer Jerry Neemann believes indirect lending and subprime lending are being incorrectly and unfairly connected, and opines indirect lending CUSOs should make an effort to bring more information to the credit union industry about the differences between the two.
"When you're talking about indirect lending, that's an auto loan origination process that occurs at the dealership, whether it's a prime, nonprime or subprime loan. If someone is having trouble with the subprime part and blames it on indirect lending, it's not accurate. That's not the problem," said Neemann.
"There's a need for credit unions to be able to provide some level of subprime lending ability to serve the underserved. But the business model they choose to do that with should be a model where the credit union is in control of the servicing aspect, and not turning that over to a third-party. It's more difficult for the credit union to control it that way."
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Neemann offered that NCUA did a good job trying to frame the difficulty of the subprime lending business model that involves using a third-party, but he emphasized that the agency did not prohibit credit unions from offering subprime loans.
"The challenge is how are credit unions prepared to service this portion of their portfolio," he said.
Neemann observed that managers of credit unions understand the differences between indirect and sub-prime lending, but he's less certain credit union boards understand the differences and, more importantly, may consider the two to be synonymous.
"It's important that the major indirect lending CUSOs bring more information to the credit union industry to help credit unions understand the difference," he said.
Neemann predicted indirect lending would continue to play a major role in the credit union industry in the coming months as the auto industry softens, as economists have predicted. The ability for credit unions to be at the dealerships with an indirect lending origination process "will be critical" for credit unions, he said.
"Banks and the captives have always been in indirect lending. Now that credit unions have done such a good job establishing themselves in that market, they need to do just as good a job maintaining their role and market share," said Neeman. –[email protected]
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