Credit union pilot targeting subprime borrowers shows promise

A small pilot program to encourage credit unions to do more subprime auto lending has helped participants gain some business but is still several steps away from providing a model for a larger effort.

“We are getting feedback and experience so far,” said Mark Lynch, field coach for the Real Solutions program, which launched in April 2014 and runs through August. “We will survey the 11 auto loan customers [credit unions], then put it all together and analyze the data.”

Since last April, participating credit unions from California to Connecticut have generated 2,600 subprime auto loans worth a total of $34 million, said Christopher Morris, a spokesman for the National Credit Union Foundation in Madison, Wis., the national trade group that runs the Real Solutions program.

He said not a single loan in the pilot program has gone into default.

‘Very little subprime’

Credit unions traditionally concentrate mostly on customers with prime-risk credit. They fund some near-prime borrowers, too, but “do very, very little subprime,” according to Tony Boutelle, CEO of CU Direct in Ontario, Calif.

In that regard, credit unions aren’t that different from most banks and captive finance companies, he told Automotive News in a phone interview on Tuesday.

Subprime lending, which Boutelle defined as loans to borrowers with credit scores below 620, accounts for about 11 percent of credit union business, he said.

CU Direct administers Credit Union Direct Lending, better known as CUDL, the largest auto lending service network for credit unions in the country. The network has more than 1,100 credit unions and about 11,000 dealerships, about 80 percent of which are franchised stores.

Not staffed

On the CUDL network, credit unions fund fewer subprime loans than the 11 percent average, Boutelle said. Subprime accounts for about 4 percent of new-vehicle volume and about 8 percent of used volume on the CUDL network, he said.

That’s partly because credit unions aren’t staffed to do the necessary extra servicing and collections on subprime loans, he said, and partly because most credit unions don’t have many members with subprime credit.

What subprime business credit unions do is often for long-term members whose credit scores suffered during the downturn, Boutelle said.

“Credit unions aren’t going out of their way to get that [subprime] business,” he said. “But if they have a member who already had five car loans with them or something, they are probably going to help them out.”

You can reach Jim Henry at autonews@autonews.com

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