When It Comes To Indirect Lending, No More 'Blind Assumptions'


WASHINGTON—CU Direct has introduced an Indirect Lending Benchmark Report that it says will help its credit union partners better understand the indirect market and make more informed pricing decisions.

Calling it the first industry report of its kind, CU Direct said the report gives credit unions a dynamic perspective on indirect lending application trends on a national, state and peer level. 

According to CU Direct, the report provides effective and accurate performance measures for credit unions in a number of key areas, including:

  • Book-to-look ratio
  • Book-to-approved ratio
  • Origination metrics and average annual percentage rate
  • Funding trends

Check Performance Indicators

“When our lender partners want to measure their success—whatever that performance indicator is—book-to-look ratio, rates, fees they pay dealers—previously there was no way to get that information,” said Michael Cochrum, executive lending advisor at CU Direct. “No other organization in the country has been able to collect as much credit union application performance data as CU Direct.”

Now, CUs can assess their performance in the indirect arena, said Cochrum, noting that only averages are shown, not individual CU performance data.

The big advantage of using the database, asserted Cochrum, is that credit unions are no longer making “blind assumptions” about local, state or national indirect market among credit unions.

For example, a blind assumption is commonly that the credit union has a competitive indirect rate, explained Cochrum. But if the credit union can review the local data that shows averages of what credit unions are paying dealers, they might often find room to adjust their rate, he said.

“They may be offering a rate they can afford to offer their members, but not one that optimizes profitability, said Cochrum. “In looking at the average rates of credit unions in their area, they might find their rate is too low.”

With turnaround time becoming much more critical in dealer decisions regarding to whom they send their business, Cochrum said credit unions can also gain new insights into just what is fast and slow turnaround.

“The credit union knows how fast they turn a loan around, and they may be happy with that time. But how fast are their competitors?” asked Cochrum. “In the past, they did not really know. So the credit union may have a great rate, maybe one they think is the best in town, yet they are still not getting the lion’s share of the business because they are too slow.”

Cochrum added that CU Direct data shows that electronically approved loans are approved 55% faster than manually approved loans.

Understanding where the CU stands regarding dealer incentives is becoming more important today as indirect incentives are shifting—moving away from buy rate to more flat fees. Buy rate, also referred to as dealer mark-up, is when the lender provides the dealer with its rates, then allows the F&I department to mark up the rate at their discretion. The CFPB has been taking action against lenders that participate in buy-rate financing—saying the practice if often discriminatory—moving many of the large bank and finance company auto lenders away from the practice.

CU Direct

Flat Rate War?

Auto industry analysts have stated that this pressure on buy rate could lead to a flat fee war among lenders.

“Now credit unions can see that they have the same rate as their CU competitors, but are paying the dealer a lower incentive, which is resulting in them getting fewer loans from a dealer,” said Cochrum.

Credit unions, too, no longer have to take the dealer’s word for how their incentives stack up.

“The dealer might say you are not paying me as much as others on your loans, while the credit union, in fact, is paying the same,” said Cochrum. “Credit unions can look at the database now and say that according to my numbers I am paying the same as everyone else. So let’s get to the real issue of why I am not getting more loans from you. This is a powerful tool.”

Section: Standard
Word Count: 830
Copyright Holder: CUToday.info
Copyright Year: 2019
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URL: http://www.cutoday.info/THE-boost/When-It-Comes-To-Indirect-Lending-No-More-Blind-Assumptions