TACOMA, Wash. — Going "green" and using pricing structures modeled after grocery stores and gas stations are just a few of the quivers in Sound Credit Union's lending arsenal that have helped it anticipate a member's loan needs well before an application is even filled out.
The $346 million credit union's multi-faceted and proactive approach to consumer lending garnered high marks from CUNA Mutual Group. In November, Sound received the Excellence in Lending award for consumer lending for credit unions in the more-than-$250 million asset category, standing out among five entries submitted.
"Historically, people would go to a financial institution, apply, and wait for a decision," said Carl Roer, vice president of lending at Sound. "With state-of-the-art technology, people can now get instant decisions. Realizing how busy people are and how competitive it is, we wanted to take it to the next level."
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One of the ladder rungs to that next height comes through Sound's alliance with Chex System's QualiFile. During the new account process, Qualifile is used to pre-approve new members for credit cards with Sound providing a $100 credit on the Visa card as an incentive. An outbound calling program is also offered to all new CU Direct Corp. or CUDL indirect members. When Sound underwrites CUDL loans, it pre-approves for Visa with a $100 credit as an incentive. The credit union's response rate for this program is 10%, Roer said.
Sound's loan balances grew by $2.09 million in 2007. Its loan portfolio increased to $240 million from $195 million. Loan yields increased by six basis points in December, to 7.11%.
In its quest to be proactive with its consumer lending program, Sound has also focused on the elimination of paper. All loan files are scanned, all forms are digitized and the credit union's automobile title system is now paperless. Sound is using the CUDL SmartFund program for electronic funding of indirect auto loans and plans to implement digital signatures for its loan documents, allowing members' signatures to automatically be inserted in the proper location upon signing on a digital pad.
"Indirect lending is a real cheap part of our program," said Caleb Cook, lending manager at Sound. "There are a lot of components to do it well. We spend a lot of time looking at tiering and monitoring profitability."
Sound isn't looking to do "just do one car loan and that's it." Cook said follow-up is ongoing. For instance, reps will call members to verify accessories on a car because dealers sometimes try to inflate contract amounts. Sound also closely monitors its relationships with dealerships watching charge-offs, delinquencies, early pay-offs, and watching lapses of insurance coverage. Cook said overall, the relationship that Sound has with dealerships is "very strong" although they've had to shut down alliances with a handful.
"There are hundreds of dealers in Washington. You have to actively monitor them," Cook said.
While still a fairly new program, Roar said that Sound's Green Auto Loan, which features a 50-basis-point rate reduction for loans on hybrid cars, has helped the credit union to get in the door at Honda and Toyota dealerships.
Another new area involves payday lending. Sound has revised its underwriting for unsecured loans and lines of credits. Members that don't meet the credit union's "normal" underwriting standards receive a second look at their entire situation. Courtesy Pay and the Balance financial counseling programs are offered.
"We're going to look at everything–do they own a home, do they own a car," Cook said. "Underwriters look at the whole picture. We're always looking for a long-term solution not a short-term band aid."
A third strategic concentration for its consumer lending programs involves pricing. Sound uses Raddon to analyze the profitability of each of its loan products. Rather than "solely copying or positioning rates in relation to competitors," Sound has implemented a pricing system that identifies proxies for risk-free investments and prices up from that by risk-based tier–factoring in expenses, loan losses, and desired rate of return.
For instance, Sound uses fractional pricing with rates: 6.39% versus 6.40%. Grocery stores and gas stations have used this method for many years, Roer pointed out. Even though there is only a slight difference in rate, "there can be a marked difference in loan activity."
"As a result of the increase in the prime rate, we have reduced our lowest home equity line of credit rate from prime, to prime minus 1.01%," Roer explained. "If prime were 8.00%, our lowest HELOC rate would be 6.99%."
As more players in the financial services industry continue to feel the brunt of the subprime mortgage loan crisis, Sound's proactive mantra has helped to buffer it from the fallout. Roer said the credit union hasn't done any subprime mortgages and it helps that Washington state has a pretty strong economy, he added.
"A big part of it is a few years ago when Carl started, he made a conscious effort to do prudent underwriting and we've stuck by that," Cook said.
"We've been proactive," Roer said. We've tightened underwriting 100% on home equity loans and car loans."
All that Sound is doing with its consumer lending programs ties directly to its vision statement: "To make doing business with us easy, quick, and convenient."
"Given the highly competitive landscape, increased utilization of technology, demographic trends involving the aging of the population which favors deposits over loans, and the time constraints that people today experience, we arrived at this proactive approach to lending," Roer said.
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