Indirect Lending is Happening: No Single Solution

One of the most emotional topics among credit unions has been working with auto dealers to provide loans to members. These programs, know as Indirect Lending, range from very structured processes offered via third parties like Credit Union Direct Lending or in-house arrangements by credit unions to set up auto specials with local dealers.

 
 
Next to philosophical arguments about fields of membership, one of the most emotional topics has been working with auto dealers to provide loans to members. These programs, know as Indirect Lending, are abhorred by some who believe that dealer and member interests are antithetical in every respect.

The reality is that almost 75% of all auto loans that are financed in the U.S. are originated at the dealer. About 50% of large credit unions report some kind of ''indirect'' or dealer relationship to generate loans. These range from the very structured processes offered via third parties like Credit Union Direct Lending (CUDL) and the Bentley Group to one-off or in-house arrangements by credit unions to set up auto specials with local dealers.

What is fascinating is that there is no one single model of indirect lending. It is a hodgepodge of arrangements. Even within the third party programs like CUDL, credit unions emphasize different aspects of the dealer opportunity. Some want only 'A' credits, some will take the entire range of risk to optimize yield, and others will focus on first time auto buyers.

Credit unions today finance about 23% of all U.S. auto loans. However, the system is as fragmented as are credit unions. Unlike the corporate network for investing, or shared branching solutions or ATM cooperatives, there is very little unified effort in this core business process. CUDL probably comes closest to building a true indirect lending network, but its efforts only impact 160 or so credit unions at this point.

These and a myriad of other facts about indirect lending will be available in a soon to be published report Indirect Lending: Challenges and Opportunities for Credit Unions (available in late July 2001). It will contain numerous case studies, a summary of best practices, and all the survey data. The report will be the most comprehensive look at credit unions role in Indirect Lending available. Available as an Adobe PDF document the report can be ordered
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July 16, 2001


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