Lending during recession

Some CU Lenders Thrived During Recession

‘No no’s’ is good news for Hutchinson CU members.

July 5, 2012

How did some credit unions manage to grow their loan portfolios during the Great Recession while others floundered?

By sticking to the basics and taking advantage of indirect lending, according to three credit unions that experienced average loan growth of 12% over the past four years.

“Eat your vegetables,” advises Garth Strand, CEO of $179 million asset Hutchinson (Kan.) Credit Union. “It’s not flashy, but you have to continuously focus on the basics—being competitive, speedy, accurate, polite, confidential, and following through—to even be in the game.”

The credit union also has a “no no’s” policy: Financial services representatives are can approve loans, but any loan denials must come from the central underwriting department.

“We don’t say no until we have done everything we can do to say yes,” Strand says.

Although other credit unions have found success with indirect lending, Hutchinson Credit Union doesn’t rely on it heavily—only 7% of its consumer loan volume comes from indirect channels. That’s largely because the credit union hasn’t found the right “philosophical match” with an auto dealer that’s good for all involved parties, Strand says.

In contrast, Scott Credit Union in Collinsville, Ill., has seen huge growth in indirect lending since 2007. “There are no silver bullets with indirect lending,” says Steve Stryker, chief operating officer for the $794 million asset institution. “We have engineered our program for the long haul by focusing on dealer communication and response times.”

As a result, its dealer network has expanded from 70 to more than 200 in the last five years. During that time, the credit union:

  • Added an electronic conduit to improve dealer communication;
  • Implemented an instant decision matrix and a centralized underwriting department to speed response times;
  • Streamlined its Internet loan application; and
  • Added a representative to manage the dealer relationship.

On the direct lending side, Scott Credit Union expanded its incentive program for frontline staff. This program is driven by noninterest income generated on direct consumer loans.

As a result, noninterest income grew from $30,000 in 2007 to $500,000 in 2011.

EECU in Fort Worth, Texas, has also found success in the indirect lending, namely by moving from a third party to an in-house program, says Joe Rossa, senior vice president of the $1.3 billion asset credit union.

“The key to indirect lending is hiring the right people and developing a relationship with dealers you can trust,” Rossa says. EECU’s auto loan portfolio grew from $275 million in 2007 to $640 million in 2011.

Another key component to EECU’s auto lending success has been its “We Are One” philosophy. To avoid competing with its preferred auto dealers, the credit union issues preapproval certificates to members with the same rates and terms whether members close the loan at the dealer or the credit union.

“We want our members back, so we allow them to finance their cars in a way that’s most convenient for them,” Rossa said. The branch still gets credit toward its goals and incentives for the application and preapproval so employees aren’t selling against the dealer.

Strand, Stryker, and Rossa addressed the America’s Credit Union Conference in San Diego, which next year will be held in New York City (June 30 to July 3).