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.