CUs Work to Recapture Auto Loans Lost to Dealers, Banks

COLUMBUS, Ohio – Credit unions that have lost vehicle loans to dealerships or other lenders aren’t just passively accepting the loan losses. Members may have been financed by another lending institution or the dealership when they first purchased their vehicle, but credit unions are using various methods to make sure they get members’ refinanced vehicle loans. “The F& I people at dealerships are very aggressive and persistent to get members’ loans, and that’s to be expected since that’s how they earn their commissions,” says Michael Spiellman, director of marketing for Kemba Financial CU in Columbus, Ohio. “There’s always an adversarial relationship and a lot of competition between a credit union and an F&I person.” He estimates Kemba looses 100-200 vehicle loans a month to dealership financing. “You can do a lot of upfront preapprovals to members, but when a member goes shopping for a vehicle, they’re almost a captive audience at the dealership.” Spiellman estimates the $204.5 million credit union finances about 200 car loans a month. He said 18% of Kemba’s 25,000 members have a car loan with the credit union. Kemba is 90% loaned out. That wasn’t always the case. In the late 1990s, Kemba’s loan-to-share ratio was down to about 70%. The credit union tried to recapture the auto loans of members who received financing from a source other than the credit union by using a listing of names of new vehicle registrants it obtained from the Department of Motor Vehicles that included information showing where the registrant financed their vehicle. Kemba got about 100 leads a month using this method, and it sent these members non-customized letters and applications promoting the credit union’s auto refinancing terms. Spiellman said the program was very labor intensive, and it was discontinued after a short while when Kemba decided to emphasize mortgage lending. A couple of years later, with its loan-to-share ratio down even further, Kemba began using CUNA Mutual Group’s Auto Loan Recapture Program. The program allows CMG’s MEMBERS Marketing Source, through a strategic alliance with Ser Technology, to submit a credit union’s membership tape to a credit bureau to ascertain a listing of the credit union’s members within a particular range of credit scores who purchased a vehicle within the last six months but didn’t finance the purchase through the credit union. MEMBERS Marketing Source in turn provides participating credit unions with a monthly report containing the names of members who have financed auto loans elsewhere, their credit score, and the amount outstanding on their loan. The program only captures members’ loans financed through other financials, excluding other credit unions. That consequently eliminates members of one credit union who are also members of another CU. Joann Patton, manager of CMG’s Auto Loan Recapture program said 200 credit unions are currently using the product. One of the big pluses of the program, she explained, is that it lets each credit union set the credit score bar and establish a credit score cut off point below. In addition, a credit union can set a different refinance rate for different credit scores, “like risk-based lending,” Patton said. Once the members are identified, MEMBERS Marketing Source mails the pre-qualified members a customized individualized direct mail piece familiarizing them with their credit union’s auto loan refinance program. Patton said most credit unions typically get a 1.0-1.5% response rate to the direct mail promotions, but she has seen some credit unions recapture 2-3% above average in auto loans. Spiellman said Kemba has further spiced its refinancing offer by offering members who refinance their vehicle loans with the credit union $75 and the option of not making a car loan payment for the first three months of the loan. When Kemba began using CMG’s Auto Loan Recapture program in April 2001, it averaged 38.5 refinanced loans a month. That figure dropped in 2002 to 28 loans a month, and then it picked up again this year to 32.5. Spiellman attributed the falloff in 2002 to dealers’ 0% financing and rebate offers. “For most consumers, buying a car is an emotional impulse decision. Dealership F&I people make it easy for them to just sign their financing papers and drive away,” said Spiellman. “Consumers don’t realize that dealers’ 0% financing deals are for A-plus credit rating borrowers. That’s why in a declining rate environment, an auto loan recapture program is a very effective tool.” [email protected]