DUBLIN, Ohio – OCUL Services Corp. is optimistic its recently formed indirect lending program founded in partnership with Denver,Colo.-based Aimbridge Group based will do for Ohio's CUs what most of them couldn't sustain on their own – viable, sustainable indirect loan activity. Ambridge Indirect Lending (AIL) Ohio was announced by OCUL Services Corp., a wholly-owned subsidiary of the Ohio Credit Union League, last November. At press time, OCUL Service Corp. Chief Operating Officer Dave Fearing said about 35 CUs had signed up to participate in the new indirect lending program. While that's only a bit more than 6% of Ohio's total 530 CUs, Fearing said "it's a start." He further stressed that the AIL Ohio indirect lending program is completely separate from the auto leasing program, CU Lease, which the Ohio League offered until August 2000. "I could probably count on one hand the credit unions in Ohio that do indirect lending," said Fearing. "In Ohio, given the demographics, there aren't a lot of credit unions that have the balance sheet capacity to do indirect lending on their own. You need a strong liquidity funding source and be able to bring a strong membership base to be enticing for dealers. While some credit unions in Ohio fit this bill, most do not. That's why the networking solution of AIL Ohio is a good idea." According to Fearing, the average size credit union in Ohio is $28 million in assets. But even some of the state's large credit unions which previously had their own indirect lending program have signed on to AIL Ohio. Among them is the $155.5-million Toledo Area Community CU. The credit union had what its VP of Lending Ron Patton described as an "informal indirect lending CUSO" since 1996 for 15 credit unions, including itself. Most of the participating credit unions were much smaller than TACCU, and the CUSO allowed them to offer the product to members and dealers and garner some auto loans. Even so, Patton explained, the CUSO didn't use any software or formal dealer management system – about 55 dealers were involved and the participating CUs chose their favorites and split them up to manage. Patton said the CUSO did deals "the old-fashioned way, with things like faxes." It funded approximately $1.2-$1.5 million loans a month for all the credit unions, with the average loan running around $15,000. In 2003, Toledo Area Community CU funded a total of 900 auto loans for itself worth $12 million. That included 284 indirect loans worth $4.4 million. "We were at the point where we'd done all we could for the credit unions in indirect lending to get volume. Our volume started to decline, and we realized it was time to jumpstart the program and get things moving," said Patton. That's why Toledo Area CCU and the other CUs decided to go with AIL Ohio. "We were one of the leaders that made this happen," said Patton. The idea of forming an indirect lending program for Ohio credit unions grew out of discussions that were held in October 2002 at a roundtable meeting among the state's largest credit unions and which were facilitated by Chip Filson. At that meeting, the Callahan & Associates president/CEO shared with attendees that 85% of auto loans are financed at the point of purchase. That means, Filson said at the time, that credit unions need to find a way to have a point-of-purchase financing arrangement for members when they shop for vehicles, and that's why a viable indirect lending program is so essential for credit unions to compete in the auto loan market. Filson didn't have a hard time convincing the CUs of the importance of indirect lending. It was harder though for the CUs to decide the best way to pursue the service offering, but always keeping in mind the important of offering it as a network solution to dealers that could deliver volume of potential buyers. A task force of representatives from nine credit unions was charged with that responsibility. They included: Tim Boellner, AurGroup Financial CU; Jim Riederer, CME FCU; Tonya Keaton, Credit Union of Ohio; Phil Miller, Kemba Financial CU; Jim Miles, MidFirst CU; Warren Brose, Nationwide FCU; Bob DeLong, River Valley CU; Judy Sherrod, Wright-Patt CU; and Toledo Area Community CU's Patton. Fearing said the group considered several options for pursuing indirect lending besides partnering with the Aimbridge Group, such as forming an in-house CUSO and building a call center, "but we quickly scratched that idea," said Fearing. The group also looked at different indirect lending vendors to partner with, but Fearing said Aimbridge Group was selected for several reasons including their technology capability and call center. "Their processing capabilities and technology side brings tremendous value to the program," said Fearing. "Aimbridge has designed a very comprehensive approach to automobile dealership network management. It also developed a cutting-edge, Internet-based automobile loan application tracing system with connectivity to credit unions and dealers that supports standard and custom credit union decisioning matrices. It can manage loan volumes from multiple credit unions, and the technology also generates individual lending status reports for the credit unions on an on-going basis," Fearing continued. He further noted that Aimbridge is very competent at dealer management "and making sure credit unions get the types of loans they need to get." When AIL Ohio was officially launched, it included 75 auto dealerships from Cincinnati, Dayton, Columbus and Toledo. AIL Ohio hopes to include the entire state by the end of 2004. AIL Ohio is currently owned 50% by OCUL Services and 50% by Aimbridge. OCUL Services is responsible for marketing the program, and Aimbridge handles the underwriting and processing of loans, and dealer management. By the end of the first quarter 2004, Fearing said Ohio credit unions will have the opportunity to become owners of AIL Ohio. When that happens, the percentage owned by OCUL Services and Aimbridge will each decrease to a third each, and the remaining third will be shared by credit union owners. Fearing stressed though that a credit union will not have to be an owner to participate in the indirect lending program, however to join the program a credit union will have to understand and agree to certain business practices of AIL Ohio. For example, he explained, there is a standard underwriting structure and program structure. "If someone had told me seven years ago that indirect lending was imperative for credit unions to be involved with if they want to compete in the auto lending market, I would have disagreed," said Patton. "Now I agree because I know how hard it is to get members' car loans. Members go where they can get the best deals and bear rate. Loyalty doesn't come into play here." To illustrate his point, Patton explained that when Toledo Area CCU first got involved with indirect lending, he wondered just how much in loans the credit union was losing to the car dealers. Patton looked at the credit reports for credit union members he was able to identify had purchased vehicles in the past year, and what he discovered answered his question: more than 60% of the CU's members had gotten their car loans somewhere other than Toledo Area CCU. -

[email protected]