Auto lending has been on regulators' radar for a number of yearsas an enhanced-risk lending sector. In particular, the Office ofthe Comptroller of the Currency has been discussing auto lending inits Semiannual Risk Perspective since 2012. Considering that creditunions have a sizeable share of the auto lending market (roughly20% of the outstanding balance), it is important that this messageof enhanced risk be effectively communicated to the credit unionindustry. ALM First proposes not abandoning the asset class, butensuring prudent underwriting and lending practices, especiallywith respect to indirect auto lending.

It's no secret that auto sales have been exceptionally strong.Annual auto sales in the U.S. have increased for several years in arow – an unprecedented growth streak – setting an all-time highnumber of units sold last year. This growth has trickled down toauto lenders. Specific to credit unions, the industry's totaloutstanding auto loan balance is roughly $320 billion as of thesecond quarter of 2017, according to aggregated Call Report data.This balance has grown at double-digit annualized rates for 17quarters in a row, another unprecedented streak since data trackingbegan in 1994.

As early as spring 2012, the OCC made note of banks seekingasset growth through launching new products, services andprocesses; indirect auto lending was specifically mentioned. Ofcourse, growth by itself isn't necessarily bad. But since then,auto lending has been mentioned eight times (every risk reportsince fall 2013). It is important for credit unions to understandthese risks regulators are discussing.