Jason Scott

Understand your indirect lending costs

Margins tend to be thinner on indirect loans compared with direct loans.

May 23, 2017

Outside of the finance department, people often express the need for the chief financial officer's (CFO) buy-in on new initiatives.

But CFOs need buy-in as well on initatives to minimize costs and increase profitability.

This is an important aspect of indirect lending, says Jason Scott, vice president, performance and planning analytics, for Security Service Federal Credit Union in San Antonio. He addressed a breakout session Monday at the 2017 CFO Council Conference in Orlando.

It’s imperative that the CFO, chief lending officer, and chief operating officer understand the profitability and costs associated with indirect lending, he says.

“The CFO really understands that profitability component,” Scott says. “He or she is going to understand where to raise rates, especially in the B and C credit tiers where there’s more margin. The chief lending officer [CLO] is going to be more worried about creating volume. It’s a give and take between the CLO and the CFO. They have to work together.”

Scott says lenders must buy in to the originating and servicing costs associated with indirect lending because margins are thinner than with direct lending.

“If I can’t get the CLO and the COO to understand the analytics, it’s really hard to manage your relationships with dealers,” Scott says.

He adds it’s also important for CFOs to look at the rate sheets from other financial institutions that do indirect lending, especially big banks.

“Wells Fargo has huge teams that work on these analytics,” Scott says. “Once you start looking at the rates sheets you’ll understand that some financial institutions understand what they’re doing better than others.”

Click here for more conference coverage from CUNA News, and get live updates on Twitter via @AdamMertzCUNA@cumagazine, and  @CUNACouncils, and by using the #CFOCouncil hashtag. Learn more about the CUNA CFO Council, a member-led professional society for credit union executives, at cunacouncils.org.