RANCHO CUCAMONGA, Calif.- Ask any credit union involved in indirect lending what the most important issue is with the product and chances are pretty good they'll answer: "dealer relations." It's almost a fact of indirect lending life for them, in fact. "Credit unions have to make sure the expectations on both sides – the credit union's and dealer's – are established from the get go, so both know what each expects from the other," advises Tony Boutelle, president/CEO, Credit Union Direct Lending. "You need to establish service standards at the front end," he says. "That way if you have a problem with a dealer down the road, you can always remind them of what was discussed and agreed on from the start of the relationship." Vice Boisseree, director of Pacific Service CU's indirect lending program has had to deal with his share of dealers' misbehavior. The Walnut Creek, Calif.-based credit union does about $11 million in indirect loans annually, and he considers closing $500,000 or more a month in indirect loans "a good month." Boisseree has had to contend with dealers who try to pad members' invoices with features that are supposed to be on their vehicle but aren't. "Our policy is we lend up to 115% of a manufacturer's suggested retail price. We tell the dealers `you can pad everything you want, but we won't go over that figure.' A dealer can lie to a buyer of the vehicle, but when the loan packet is sent to the lender, it has to include the invoice sheet. So unless they massage the invoice, we're going to be able to see if they've padded the invoice," he says. What happens when a dealer is caught? Boisseree's tactic is to send the contract back to the dealer, tell them the credit union refuses to buy the contract, and threaten to cut off Pacific Service's relationship with that dealer. Boutelle said a reaction such as this is not extreme. "When a credit union suspects there's some sort of fraud going on at a dealership and we think there's credible evidence, we suspend our relationship with the dealer and go in and investigate. If the allegation proves true, we cut the dealer out of the CUDL network." CUDL currently has relations with more than 2,000 dealers. Boutelle says he gets complaints from credit unions about dealers at least two or three times a month. Boutelle says that's one of the values an indirect lending network like CUDL – you can leverage the number of credit unions participating in the network to get a dealer to "stay clean." He explained that when credit unions first got involved with indirect lending years ago, they usually didn't find out if a dealer padded an invoice until the credit union repossessed a vehicle. Of course by then it was too late to try to remedy the situation. "Nowadays, credit unions are more astute. We train our credit unions to make follow up calls to members to make sure all the features the invoice says are supposed to be on a vehicle, are in fact there," he says. Boisseree said Pacific Service also encourages members who are considering purchasing a vehicle to do their homework first and get as much information and data on the vehicle they're considering beforehand. For dealers who work well with credit unions and regularly send the credit union good loans, good behavior has its just rewards. Boisseree says Pacific Service knows which dealers send the credit union loans with credit score 620 and higher, and which don't. "The volume of loans we get is meaningless if they're not good loans," he says. Of the 140 dealers Pacific Service has relations with, Boisseree says it does favors for around a quarter of them. These favors may mean approving a loan that otherwise would be denied because of the borrower's circumstances. "Good dealers don't take advantage of the situation," says Boisseree. "They don't `grind' with credit unions, plead or beg them to take the loan. They know our criteria, and they respect our standards." [email protected]