How vendors help
Well before matters reach the need for repossession, Boutelle says software such as CU Direct’s Lending Insights is necessary for setting up a subprime lending program.
“The software monitors and maintains every kind of loan, from subprime to prime, from auto to personal to home,” he says.
CU Direct also works with another company that provides partial default insurance for subprime loans.
Miller agrees that credit unions’ ability to safely provide auto loans to people with impaired credit largely depends on their member base.
“It should be a customized decision and you should be prepared to have recourse,” he advises. “Get a sense for how and where the car will be used, and begin to evaluate repossession and recovery vendors who can help you recover your assets quickly and professionally should something go wrong.”
AutoIMS provides a technology platform that makes it easy to manage repossession agents, vehicles assigned for repossession, and vehicles assigned for auction sale.
“So many decisions have to be made about each vehicle during these processes that depending on faxes, emails, and phone calls would make it prohibitive to make subprime loans,” Miller says. “Our system replaces an unmanageable amount of communications and spreadsheets with a system that in many cases allows a credit union to run a one-person auto lending and repossession show.”
To find a repo agent, for example, lenders log into AutoIMS and find who’s close, who’s available, their up-to-date insurance bond information, their performance record, and a side-by-side comparison with other agents in their area.
“Once you use the system to assign an agent, it prompts the agent to send you updates and status reports,” Miller says. “The same thing applies to auction assignments and disposal. The systems finds the closest auction, arranges transport, accesses the auction-provided condition report, makes intelligent repair and pricing decisions, and tracks and reports on performance.”
AutoIMS, an affiliate of the auto auction industry, lists 500 auctions nationwide in its system.
“A credit union picks which auction it wants to send a car to and then electronically submits all pertinent data to the auctioneer including legal compliance requirements for that auction’s particular state, and other preferences related to selling at auction,” Miller explains. “The credit union can add special requests, such as putting a hold on selling a vehicle until a particular date.”
Even though most repossessed vehicles aren’t of the highest quality, there has been a strong seller’s market over the past two years, he adds.
“New car sales have dropped as people kept their old cars longer. A low supply of used cars, which now appears to be easing, has allowed auctions to bring high prices on many cars. We’ve even had cases where the sale of a repossessed car not only paid off the debt owed but allowed for a profit.”
Whatever software credit unions use to enter the subprime auto loan market, Boutelle says it’s worth repeating one important rule: “Look to your existing member base for your subprime borrowers.”
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