Leveraging a Digital Lending System to Help Drive Indirect Auto Loans
CU Direct recently partnered with Visions Federal Credit Union on a case study that took a close look at the credit union’s success in the indirect lending marketplace, and the steps the credit union took to overcome the challenges it had in growing loans through the indirect channel.
Visions’ indirect lending program had been a manual process. Dealers would fax purchase orders to the credit union, and employees would manually enter the information into its loan origination system. The credit union’s loan officers would then have to call the dealership with loan approval or denial.
In 2013, the credit union began researching loan origination systems, as well as what dealers were looking for from them as an auto lender. Simply, the dealers were looking for a digital process. The credit union was looking to implement a digital indirect lending system that would enable it to meet current and future loan growth goals, while fostering and supporting a relationship with dealers that made the credit union a valuable business partner.
At the time, Visions had agreements with approximately 80 dealers to provide indirect financing. However, only a small percentage of the dealers sent the credit union applications, and even fewer produced loans that were eventually funded, creating a look-to-book issue. A lack of quick, digital loan decisioning was partly responsible.
Visions was also competing against other lenders that offered markup incentives to dealers, something it firmly believes goes against the credit union philosophy. The credit union needed an indirect partner that would provide it with attractive market differentiation that wasn’t tied to paying any markup.
Visions looked at many indirect lending systems, and ultimately selected CU Direct’s CUDL lending platform for several reasons. CUDL provided Visions with the ability to fund and retain more auto loans, increase profitability and fuel membership growth. Additionally, CU Direct’s superior business model allowed Visions to protect its look-to-book ratio.
The first year using the CUDL system, the credit union experienced a 60% increase in indirect auto loans, achieving $11 million in new originations. Over the next three years, loans through the indirect channel continued to increase, with $28 million in loan originations in 2014, $79 million in 2015, and $90 million in 2016.
In 2017, the year the credit union hoped to reach a once unthinkable goal of $100 million in auto loans, Visions ended the year with over $120 million in new indirect loan originations. In total, Visions’ overall indirect portfolio grew from $30 million at the outset to nearly $250 million. In addition to dramatic year-over-year growth in loans, the credit union has also grown membership 1,000-1,600 members annually since implementing CUDL in 2013.
Another important aspect to Visions’ indirect lending success was its commitment to seek out annual dealer feedback and use the data to make program enhancements that strengthened dealer relationships and increased originations. Taking advantage of CUDL’s wide dealer network helped fuel immediate growth for Visions’ indirect lending program.
When Visions committed to its goal of originating $100 million in new indirect loans per year, it took an “all-in” approach for three primary reasons:
• It could be used as a strategy to achieve new market penetration
• It was a way to serve members in a non-branch environment
• It supported loan growth goals
After five years of strong commitment to indirect lending, the credit union pointed to these major benefits for incorporating the CUDL indirect lending platform and executing its new lending strategy:
• Increased member and loan opportunities at the point-of-sale
• Joint marketing opportunities
• Loan portfolio diversification
• Opportunity to strengthen partnerships with community businesses
Visions’ “all-in” indirect lending strategy has been so successful, the credit union has increased its cap of how much indirect lending it can hold compared to other loan assets. “It used to be $300 million, and they thought we’d never hit that,” notes Tom Novak, Visions’ Director of Digital Banking. “But we recently increased it to $500 million, and we’re already halfway there as an overall indirect loan portfolio.”