Studies show credit union members trust their credit union over other financial institutions. The importance of trust between credit unions and their members is particularly evident in smaller communities, where business with a handshake helps streamline purchases and takes the hassle out of living in a remote region.
"Trust is a two-way street," says Cindy Griffin, president of Northern Hills Federal Credit Union ($45M, Sturgis, SD). "The credit union should provide information to act as an educational resource and help the member. On the other side, the member needs to trust that the credit union is providing the best option and helping guide them."
In South Dakota, Northern Hills identified a need for convenient, quick auto lending. Although there are a few car dealerships in and around Sturgis, it is not in the "mainstream car shopping area." Many people travel out of town to Denver or Rapid City, SD, to take advantage of the wider auto selection. If a member with an established relationship and credit with Northern Hills is in the market for a new(er) car, then the credit union will authorize the member to write a personal check for a car purchase. The credit union honors the check, knowing the account does not carry the check's full balance. The credit union trusts the member to initiate a proper auto loan ASAP, and the member avoids the hassle of securing financing through a dealer, manufacturer or other third party.
"We found there was a need for this service and it's one way to make it easier for the member," Griffin says. "When the member comes in, they have all the information they need to complete the loan so it's a smoother process."
Additionally, the member doesn't have to make multiple trips to the dealership, and the credit union builds its auto loan portfolio.
"The credit union wants the business," Griffin says. "This is one way to capture that share of the market."
The service, however, is not a free for all. Authorization is made on a case-by-case basis and variables such as income, debts, home ownership and outstanding collections are taken into consideration along with the relationship the member has with the institution. The credit union still pulls the member's credit report and purchases are pre-approved up to a certain limit. And whereas trust is important, the credit union prefers to speak with the member pre-purchase.
"If the member has a particular car in mind, we'll look at what it's worth and what the member has for a down payment," says Kim Ross, a loan officer at Northern Hills. "If the member hasn't dealt with the dealer yet, we'll say 'Here is what we can lend. Go talk to the dealer, and if it fits, go for it.'"
It is essentially business with a handshake, and for more than 20 years, the credit union has not had a member fail it.
"In this world, a loyal member is harder to come by," Griffin says. "The opportunity is there to grow a loyal member base and to keep them happy. This is a little bit of pain taken out of purchasing a car."