REAL Solutions_Steer Clear Handout_ILCUL


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Provided courtesy of the Illinois Credit Union League.

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REAL Solutions_Steer Clear Handout_ILCUL

  1. 1. Steer Clear of Predatory Car Loans™ Loans™ ILCUSYS
  2. 2. Non-Prime Auto Finance is BIG for CUs Percentage of Americans That drive to work. 88%. Fewer than 5% take public transportation to work. Percentage of US auto finance market that CUs captured in 2007. 15%. $90 billion in used cars loans, 12% of CU assets Percentage of 8 million used cars sold to low and moderate income borrowers annually that Cus finance 5% Credit Unions 30% Banks 60% sub-prime lenders 50% of CU loan applicants are turned down. If credit unions lend Below FICO 600, their market is expanded by 15%. To no FICO, their low mod market is expanded by 40%. How big is this market? You Are Here
  3. 3. CUs Help Car Buyers Steer Clear of Predatory Loans Survey of 251 Credit Unions Interviews with 12 Credit Unions 8 Vendors SEVEN LESSONS Lessons in non-prime auto lending 1. Financially viable line of business. 2. Transfer traditional character lending into automated decision-making process. 3. Assist members in finding cars. 4. Employ a hard close to cement bonds with members. 5. Insure borrowers against events out of their control. 6. Export risks by using loan loss insurance products. 7. Keep in touch with borrowers by monitoring and collecting loans early.
  4. 4. 1 High Net Margins from Existing Members Non-Competitive pricing in marketplace. Price Non-prime loans for risk and effort. Members still receive a much better deal. This need not be charity work. 2 Reduce Underwriting Gap Credit Scores are Fast Inexpensive Simplify loan pricing Competitive Since all lenders have the same data No relationship needed Not subjective Non-discriminatory Uniform Derive from one data source (credit repayment records). Incomplete
  5. 5. 2 Missing: 25% of the Population 2 More data sets means “Yes” more often Payment of monthly rents / leases Payment of telephone, electric, cable television, natural gas and insurance bills Internet and catalog purchases Electronic bill payment Public sources of information including tax liens, criminal records, and bankruptcy filings Ask and Verify
  6. 6. 2 Reduce Underwriting Gap FICO Expansion Score Link2Credit Market Max RiskWise Bill Payment VantageScore Experian, Equifax and TransUnion 2
  7. 7. 3 Get in front of the dealer Assist the member in finding a car Credit Union Direct Lending CUDL United Buying Service Motor Vehicle Certification Program Cars for Members Auto Resource Center Auto finder Autoland Enterprise Car Sale SmartBuys program 4 Build the Loan Correctly The Hard Close situation appropriate member education Thank you for the business Value of membership Verify loan application information Employment, residence, references, Photo of car Review all Loan terms Payment amt and due date Value of on time payment Insurance requirements Late fee and penalties Keep in touch Contact CU if there is a problem Cross sell (Just in Time Education) Direct Deposit Automatic Payment Savings Escrow Guaranteed Refinance offer
  8. 8. 5 Insure the borrower Insure what they can’t control Collision Mechanical Breakdown Insurance or extended warranty GAP loan deficiency or residual value insurance Debt Cancellation for divorce, injury, loss of job Credit Life Walkaway: Give the car back, no further collection or credit degradation. 6 Export the Risk Use loan loss insurance products and guarantees. Lender’s Protection, a risk pool Charlie Mac CARPooL program Guarantees (NFCDCU Pride Deposits)
  9. 9. 7 Keep in Touch Allocate resources to collect the loan quickly Make contact with borrower when one day late Premium to borrower for visiting Collection Officer in person: $50 Pre-Paid card Repossess when 30 days late. Next Steps A Toolbox for Asset Builders Information on common financial problems and solutions On-line training for staff Tools to better assess client needs Quality financial products and services Access to advanced, experienced help Resources to help your organization
  10. 10. Benefits to Credit Union Asset Platform is a source of membership and loan referrals partnership with non-profits No up-front fees Easy Turn-key implementation Compatible with existing underwriting and application systems
  11. 11. Benefits to Credit Union Credit Union chooses level of service CU only pays for completed member applications or funded loan Direct-to-Consumer loans perform better than indirect programs. Quality controlled by lender underwriters with adherence to lender’s predetermined guidelines. Lender may enter or re-enter auto lending market with controlled risk. Four Service Tiers Credit Union Listing (pre-populated database) Credit Union Subscription Auto Loan Underwriting for Credit Unions Delegated Lending for Credit Unions
  12. 12. Contact information for software mentioned in program: