AUSTIN, Texas – Should we or shouldn't we? That was the question University FCU had to answer two years ago concerning whether it should continue ITS indirect auto loan program. For seven years, indirect lending had contributed to the bulk of the CU's auto loan portfolio, but increasing problems with dealers forced UFCU to make the tough decision. Now, two years later, the $430 million credit union the 12th largest in the state-has no regrets. University FCU Vice President of Lending James Nastars recalled some of the mounting problems the credit union was having with the more than 100 dealers it had in its indirect lending program. The dealers for example wanted the credit union to raise the cap the dealers could charge members from 3% to 5%; they wanted UFCU to abandon its risk-based pricing program. UFCU also learned that it could offer members a better rate directly because there was a 100-price point spread between the lobby and dealer pricing. The bad news and complaints UFCU heard from its members just got worse – dealers were steering members away from the credit union for financing and trying to convince them to use dealer financing. "We realized we were losing 60-70% of auto loans to dealer financing," said Nastars. In addition, the dealers wouldn't let UFCU offer credit life insurance, GAP pricing and mechanical protection policies. "We were faced with having to make a tough decision," said Nastars. "The dealers in the program funded about $300 million in loans for us. The indirect lending program was the primary source of auto loans for the credit union, but the indirect lending program wasn't in our members' best interest." Still, UFCU gave the program one more try and sent out letters to the dealers inviting them to participate in a credit union-dealer relationship building program. Nastars said few dealers responded. UFCU bit the bullet and notified the dealers by mail Jan. 1, 2000 that the credit union had decided to service members directly in the future. The responses, said Nastars, were mixed. Some were nasty, other dealers were very competitive with the credit unions. That didn't surprise Nastars. "After all, we were taking their loan customers," he remarked. At the same time UFCU discontinued its indirect lending program, it launched its Wheels 101 Member Education Program designed to teach members how to negotiate the car buying process. Remar Sutton, co-founder with Ralph Nader of the Consumer Task Force for Automotive Issues, assisted the credit union with creating and writing materials for the program. Twice a year, UFCU offers members free auto buying seminars and provides them a free 20-page Buyer's Guide. The net result? Last year, Nastars said UFCU had a 30% overall loan growth, and auto loans comprised 25% of UFCU's loan portfolio. At the present time, UFCU is running about 122% ahead of its auto loan volume from last year. Nastars attributes the success of the Wheels 101 program to the trusted advisor role the credit union puts itself into for members. "If members trust you're there to help them get a car at the best rate and terms, the loans will take care of themselves," he said. UFCU also began its own auto loan recapture program called "The Second Chance Program." The program kicked into gear this year, said Nastars. Through the program, UFCU accesses a database from Liberty to find members who took out an auto loan over the last six months from another financial and helps them refinance the loan at a lower rate. UFCU offers the member $25 for the opportunity to let the credit union compare loan rates and terms with those the member received from another financing source. "In many cases we've found that even our standard rate is lower than the rate they're getting from other financials and dealerships," said Nastars. To date, the Second Chance program has recaptured over 500 loans in excess of $11 million. In July 2001, the program recaptured 137 loans totaling more than $2.5 million. The credit union, said Nastars, has even had a request to refinance an airplane for a member. – [email protected]