More Credit Unions Now Track Indirect Lending Charge-Offs Separately from Direct Channel

Indirect lending programs have become more popular among credit unions as they look for ways to better compete for auto loans. While call report data suggests that participants benefit from increased auto loan volumes - especially for new auto loans - the programs carry a higher charge-off risk because credit union lending officers are usually not present at the time of the application. It now appears that more credit unions are taking proactive steps to manage the risk of their indirect lending portfolios, compared to one year ago. This is good news for the long-term soundness of credit union indirect lending programs.

 
 

Indirect lending programs have become more popular among credit unions as they look for ways to better compete for auto loans. While call report data suggests that participants benefit from increased auto loan volumes - especially for new auto loans - the programs carry a higher charge-off risk because credit union lending officers are usually not present at the time of the application. It now appears that more credit unions are taking proactive steps to manage the risk of their indirect lending portfolios, compared to one year ago. This is good news for the long-term soundness of credit union indirect lending programs.

Nearly three-quarters of credit unions responding to a May 2003 Callahan & Associates survey indicated that they track indirect lending delinquency and charge-off rates separately from their direct channel. There are no significant differences in tracking behavior between programs run by a sole credit union and those managed by a CUSO. The tracking rate represents a double-digit gain over 2002 levels, when less than 60% of respondents to a similar Callahan & Associates survey said they tracked channel risk separately.

Of those, 44% are seeing higher charge-offs on indirect lending compared to their direct portfolio. Again, no differences were reported between credit union-managed and CUSO-managed programs.

 

 

 

June 6, 2003


Comments

 
 
 
  • Ent Federal Credit Union has extensive information on the disparity between direct and indirect charge-offs should you ever need that type of information. Bill Vogeney Chief Lending Officer
    Anonymous
     
     
     
  • Ent Federal Credit Union has extensive information on the disparity between direct and indirect charge-offs should you ever need that type of information. Bill Vogeney Chief Lending Officer
    Anonymous
     
     
     
  • I think it would be even more interesting if the article went one step further and took into consideration what credit quality levels the participating credit unions accept from their Indirect channel. Some programs only allow for prime or near prime. Other programs allow for all credit quality to be submitted. I would like to see that breakdown. Marlise Avina, Director of Business Development, North American Acceptance Corp.
    Anonymous
     
     
     
  • Your report does not indicate if the 44% with more charge-offs realized higher profits overall. This could also be a reflection of higher unemployment in some regions.
    Anonymous
     
     
     
  • Choice Community CU will soon rollout an indirect program with Centrix. We deferred implementation of a self-managed program because high, up-front dealer incentives would have resulted in inadequate, even negative net yields.
    Anonymous