Citadel Federal Credit Union ($1.8B, Exton, PA) operated a point-of-purchase lending CUSO for nearly thirteen years. But after closing the CUSO, Citadel was challenged to make its auto lending program more profitable.
The Challenge: Reduce Expenses And Grow The Auto Lending Portfolio
As a result of a previous indirect lending relationship, the credit union had accrued $30,000 in monthly expenses from application fees, dealer “shotgunning,” and paper that did not meet the credit union’s lending criteria. Furthermore, only 23% of the indirect loan applications being received were actually being funded.
Citadel realized it needed a solution that would cost less and allow the credit union to set forth tighter lending parameters for its dealers. During its pursuit to find a solution that would accomplish these goals, the credit union was also seeking solutions that would provide more auto buying services for its members to help expand their auto loan portfolio.
The Solution: Switch Point-Of-Purchase Providers
Citadel decided against continuing with its previous provider after getting hit hard by expenses from both application fees and the inefficiencies associated with dealers submitting all paper types to multiple lenders.
The credit union looked at several different solutions prior to making a change but eventually converted to CUDL in the fourth quarter of 2008. This decision was based on three key objectives:
Switching gave Citadel the opportunity to save thousands of dollars a month on application fees, as the new solution only charged for the applications that were funded.
The new point-of-purchase solution gave Citadel the ability to set its exact lending parameters and criteria for applications submitted by dealerships. Citadel could automate loan decisioning, and as a result, streamline their underwriting process.
The credit union had immediate access to a variety of marketing solutions, including a co-branded auto research and shopping website (the CUDL AutoSMART program) that allowed Citadel to provide more auto buying value to its community and members. The credit union also saw this as an important opportunity to acquire and strengthen dealer relationships, since dealerships have the ability to post their inventory onto the site.
“For dealers in our geographic segment, to have your inventory in front of almost five million people is a no-brainer,” says Barry Rose, VP of Lending at Citadel Federal Credit Union.
The Results: Double The Number Of Funded Loans And Thousands In Savings Gained
Within a year of the conversion, Citadel’s auto loan portfolio grew by 14%. Funding climbed from $170 million in auto loans to $193 million, without any additional staff. Efficiencies also increased and look to book has gone from 23% to 54%. As of third quarter of this year, roughly 91% of the credit union’s total auto lending paper had a 710 or greater credit score.
Since converting to CUDL, Citadel’s auto lending market share has doubled and the credit union ranks 6th overall and 1st in credit unions out of all lenders in their regional area.
“Since the switch, our plans for portfolio growth have been realized,” Rose says. Additionally, the credit union spends less time setting up new dealers, as CUDL handles the dealer due diligence and contracting of each new dealership.
“Credit unions need to gain an understanding of how much money they can save just by changing their indirect lending program,” Rose says.