Single Sponsor Credit Unions Can Benefit From Indirect Lending

Ideas on how your indirect lending program can reach its full potential.

My perspective, after coming over to Chevron Federal Credit Union, after being at Travis FCU for seven years is that the outlook regarding indirect lending is quite different. I’ve seen it, literally, from both sides of the spectrum, said Rebecca Lytle, vice president of Lending for Chevron FCU.

Those differences weren’t just limited to size or distance, either, but extended to type of charter and the philosophical implications of indirect lending itself.

Travis is located in Vacaville, has over $1 billion-in-assets, more than 113,000 members and a community charter. Chevron is in Oakland, has assets of $586 million, 46,000 members and a closed field-of-membership.

We were big users of CUDL at Travis, and because of the community charter, we had a very high volume, said Lytle. By any definition and measure, the program was successful. Lytle said that applying those same standards to Chevron’s program wouldn’t be fair; like comparing apples to oranges.

But she is downright certain about the importance that indirect lending plays in the loan mix of the CU, though. Here in the northern California bay area, we couldn’t compete without it, she said. We’ve got to play in the same game as all the other community charters here that are vying for the business at car dealerships. If we’re not there, we’ll miss out, period. And that means that our members will miss out.

One of Lytle’s planned changes is to bring a more competitive approach to Chevron’s method of pursuing loans through the CUDL program, she said. Just because we are a closed FOM doesn’t mean indirect lending can’t be an integral part of our loan portfolio. Our members are out there, too. Chevron has been in the CUDL program for three years, but it hasn’t been a large producer, said Lytle.

Lytle believes that credit unions that have strong single sponsor ties and rely on target marketing and other usual sales methods like auto loan pre-approvals to make volume are kidding themselves.

Even if we do pre-approvals, and we do, our members still have to go to the dealers, who will try to steer them into other financing. If we didn’t have CUDL, that pre-approval is in jeopardy. By being in CUDL, we are in the pool of lenders that the dealers pick from.

Lytle also plans to work the relationship with the dealer network, as that’s been a part of Chevron’s CUDL approach that’s been lacking. We didn’t develop the ties with dealers that other credit unions did, and that’s important. You need to give them feedback, and we didn’t. You also need to hear feedback from the dealers. It’s a two-way street. If we do all those things, I think we’ll see a big jump in our loan volume from CUDL.

Lytle also believes that smaller credit unions have even more to gain from an established indirect lending network than their bigger brethren. The smaller credit unions don’t have the expertise or money to start up a program like that. CUDL has seen it all, and it shares all that knowledge with its partners. That knowledge helps them manage the program more efficiently. That’s where we were at Chevron. We thought of CUDL as a competitor, rather than a partner.

The sea change in philosophy, from seeing CUDL as a partner, rather than as a competitor, combined with opening up the lines of communication with CUDL dealers will go a long way, said Lytle, toward making the indirect lending program reach its full potential.

This case study originally was published in Callahan’s 2001 research study on indirect lending

April 8, 2015

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