Citadel Federal Credit Union ($1.8B, Thorndale, PA) operated a point-of-purchase lending CUSO for nearly 13 years. After closing the CUSO, Citadel was looking for a way to make its auto lending program more profitable.
The credit union had been using an ill-suited indirect lending provider for some time. As a result, it had accrued roughly $30,000 in monthly expenses from application fees, suffered inefficiencies associated with dealers submitting all paper types to multiple lenders, and had paper that did not meet the credit union’s lending criteria. Furthermore, only 23% of the indirect loan applications received were actually funded.
Citadel recognized that they needed a solution that would cost less and would allow the credit union to set tighter lending parameters for its dealers. In its pursuit to find a solution that would accomplish these goals, the credit union was also seeking options that would provide more auto buying services to its members and help expand the auto loan portfolio.
Citadel decided against continuing with their previous solution, and investigated several different options. After due diligence, Citadel decided to convert to a new point of purchase provider based on three key objectives:
Switching to a solution that only charges for the applications that are funded gave Citadel the opportunity to save thousands of dollars a month in application fees.
The desired solution would give Citadel the ability to set its exact lending parameters and criteria for applications submitted by dealerships. Citadel would be able to automate their loan decisoning, and as a result, streamline their underwriting process.
The credit union also sought to gain immediate access to a variety of marketing solutions, including online options. With an expanded presence through a vendor partner, Citadel would be able to provide more auto buying value to its community and members by having a co-branded auto research and shopping website.
The credit union also saw this option as an important factor in acquiring and strengthening dealer relationships, since those individuals would have the ability to post their inventory on the site.
“For dealers in our geographic segment, to have your inventory in front of almost five million people is a no-brainer,” stated Barry Rose, the credit union’s vice president of lending.
After weighing these factors in relation to the goals they had set for themselves, Citadel converted to CUDL in 4Q 2008. Within a year of the conversion, the auto loan portfolio grew by 14%. Funding climbed from $170 million in auto loans to $193 million without any additional staff, and efficiencies also increased.
Having a partner committed to their goals improved the recieved-to-funded ratio from 23% with the previous solution, to 50%. And, as of late 2010, 84% of the credit union’s total auto lending paper had a credit score of 710 or greater.
Two years after converting to CUDL, Citadel’s auto lending market share doubled and the credit union ranked fourth out of all lenders in their regional area. Additionally, the credit union spends less time setting up new dealers, as CUDL handles the dealer due diligence and contracting of each new dealership.
“Since the switch, our plans for portfolio growth have been realized,” Rose says. “Credit unions need to gain an understanding of how much money they can save just by changing their indirect lending program.”
This article originally appeared in the Fall/Winter 2011 issue of CU Direct’s Merge Magazine.
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