In the rural regions of South Dakota, people think nothing of traveling out of town to purchase a vehicle. Members of Northern Hills Federal Credit Union ($47.7M, Sturgis, SD) frequently drive 30- to 60-minute to Rapid City, SD for a wider selection of automobiles; some even make the trek to Denver, CO, more than 400 miles away. Watching members travel here, there, and everywhere for their auto needs, Northern Hills identified an opportunity to capture market share.
"We needed to be easier to do business with," says Cindy Griffith, president of Northern Hills FCU. "Members expect great service because they can get that anywhere. What they want is exceptional service."
In November, creditunions.com ran a piece outlining Northern Hills's auto lending service and the bond of trust it establishes between the credit union and its members. The credit union found a way to provide exceptional service by focusing on character, capacity and collateral. Using those criteria, it authorizes members to write personal checks for car purchases. The credit union honors the check, with the understanding that the member will initiate a proper loan as soon as possible.
The service is easy to use, but it is not an open check. "There is a limit attached," Griffith says. Northern Hills does not market the service, but word-of-mouth gets around. If members want to take advantage of it, the credit union is happy to explain how it works.
Before the credit union honors a check, it talks with members about what they are looking for in a loan. How much does the member want? How do they want to pay it back? What terms are they looking for? Will they trade in? Have they saved cash for a down payment?
If it sounds like the credit union is handing over the keys to vault, in a way, it is…at least for members whose primary financial institution is the credit union. The credit union is a tight community within small surrounding communities, and employees, such as the loan staff, trust good members to honor their word. For the members, it's a matter of convenience; for the credit union, it's just one more step in the process.
"We're prepared for the next step, we know what to expect," Griffith says. "The member wants that check to clear. When they call to tell us how much they wrote the check for, we schedule a time for them to come in."
Aside from the initial conversation, the credit union handles the majority of the loan details after the member cuts the check. If a dealer contacts Northern Hills for check validation, the credit union collects requisite information at that time. It also pulls information, such as a vehicle's serial number, from the purchase agreement and uses other documentation brought in by the member or submitted by the dealer. It rarely happens, but sometimes the credit union does contact a dealer to be added as a lien holder on the dealer paper.
The credit union has offered this solution for more than 20 years. At that time, offering "business with a handshake" raised some eyebrows; today, it seems downright antiquated. To date, though, no member has abused the privilege and examiners and auditors take no exception to it. The service might be an unusual way to originate a loan, but the end-result is an auto loan on which the credit union provides good, plain reports.
"Examiners are curious about it and look at the process, and then they move on," Griffin says. "We are proud of our reviews."
Examination might appear nonchalant, but the credit union says there is nothing to look at; it posts reasonable, positive numbers from its loan strategy. Its current delinquency rate, although higher than normal at 0.9%, is still well below the national average of 1.59% and the state's average (1.33%). Its loan-to-savings ratio is 86.6%, which is, once again, higher than the national average ratio of 65.8% and the state average of 76.3%.
Auto lending is a good niche for Northern Hills, and it's an area where the credit union has developed notable efficiencies.
"We're here to make loans to our members," Griffith says. "That is primarily our bread and butter."