The next time you're listening to the radio or local TV, payattention to the car sales commercials. Personally, I really get akick out of some of them. Car salesmen dressed in ridiculouscostumes make bold claims such as, “No credit? No problem! Comeover to XYZ auto where you can sign and ride for a nickel down!”Sound too good to be true? For those who desperately need anaffordable auto loan, it often is. The fine print will likelyreveal high interest rates with long repayment periods needed inorder to make the payments “affordable.” For financially vulnerable households, money paid in interest couldbe used for building long-term wealth, paying emergency expenses orreducing high cost debt.

These high-rate, long-term auto loans are similar to payday loans or cash advance offers.While the rates and costs of these services are distasteful tomany, what they provide is access to money and credit whenmainstream institutions like credit unions and banks fail to act.

The Importance of Affordable Auto Lending

How important is access to a reliable car? A study by the AnnieE. Casey Foundation titled “Pursuit of the Dream, Cars and Jobs inAmerica” indicates 88% of Americans drive their cars to work, withtwo-thirds of new jobs located in suburban areas away from publictransportation systems. If you can't get to work, how can you work?If that didn't get your attention, try these statistics:

• Low-wage workers with cars are more likely to be homeownersthan those without one.
• The Federal Reserve reports those earning $30,000 or less peryear paid an annual interest rate that was 56.1% higher than peopleearning $90,000 per year.

I've heard arguments that those without automobiles shouldsimply use public transportation. Take a look in your owncommunity. Could you survive on public transportation alone? Mydaily commute and daycare drop takes a half hour each way. Takingthe bus would add an extra 80 minutes round-trip, not taking intoaccount juggling grocery shopping, doctor's appointments and otherdemands. I am grateful for my car. For financially vulnerablehouseholds lucky enough to be in an area with publictransportation, it may be an option, albeit not a very goodone.

Credit Unions Pave the Way

The good news is there are numerous resources available forcredit unions willing to tackle this challenge. In addition to themultitude of credit unions that have paved the way, Filene ResearchInstitute, in collaboration with the National Credit UnionFoundation, tested a Non-Prime Auto Lending (NPAL) program as partof Filene's Financial Empowerment Incubator. The results wereastounding. During the 18-month reporting period, 10 credit unionsclosed 7,605 loans totaling more than $102 million. The averageborrower income was $42,418 with an average credit score of 584. Inaddition to the member impact, the program was financiallysustainable. Dave Prosser, SVP of Community Development at FreedomFirst Credit Union and a tester of the NPAL program, said, “[It]isn't a charity. It is a business that makes money for FreedomFirst – lending to people who work hard and can be trusted to repaytheir debt.” An implementation toolkit is available through theFoundation to help credit unions model best practices, overcomeobstacles and set up a program with the highest potential to makemeaningful member impact in a financially sustainable way.

Expanding Your Portfolio Makes GoodBusiness Sense

Traditional auto lending remains a core and profitable endeavor.A June 2017 Credit Union Trends report by CUNA Mutual Group foundnew auto loan balances grew at a 26.5% seasonally adjustedannualized growth rate in April 2017. Credit unions have atremendous opportunity to continue riding the wave of profitableauto lending and expand their portfolio to serve financiallyvulnerable populations. Expanding service to your community isn'tjust about non-prime lending. Filene is currently testing aNon-Citizen Lending program in our Incubator. Using alternativeidentification verification processes such as the Individual TaxPayer Identification Number, many credit unions in the pilot areable to offer existing auto loan products to non-citizens. PointWest Credit Union updated its non-citizen lending program in 2014and reports repayment rates equal to, or better, when compared totheir total portfolio.

Don't Disguise Your Community Mission

The next time you hear one of those too good to believe, overthe top, costumed individuals making a car sale pitch, take a lookaround your community and consider the demand for affordable andreliable automobiles. Credit unions don't need a disguise orgimmick to better serve members. They just need a commitment tofind a way to say “yes” to an affordable auto loan when others say“no.” It is clear credit unions see auto lending as a core part oftheir portfolio. My hope is that the industry can also see autolending to financially vulnerable populations as an equallyimportant part of their core mission and operations.

Adam Lee is Incubator Directorat Filene Research Institute. He can be contactedat 608-661-3747 or [email protected]