WASHINGTON (8/12/08)--A new research report published by the National Credit Union Foundation (NCUF) details seven lessons from credit unions making sustainable used-auto loans to non-prime borrowers. Steer Clear: How Credit Unions Help Car Buyers Avoid Predatory Loans
, demonstrates how credit unions can gain a sustainable share of the “non-prime” market, where eight million used cars are sold each year to borrowers with less than prime credit scores. The free 57-page report is available on NCUF’s website. The non-prime auto loan market is dominated by sub prime lenders (60% market share) and banks (30% market share) that charge much higher interest rates than credit unions. “Non-prime auto lending represents a substantial opportunity for credit unions to expand their markets, build net income, and attract new loyal members by giving them a substantially better deal,” said report author Bill Myers, field coach for NCUF’s REAL Solutions program and senior fellow at The Aspen Institute. The report’s seven lessons are based on experiences from more than 250 credit union lenders who responded to a survey commissioned by NCUF, and on Myers’ follow-up research on best practices from credit unions making “large and sustainable inroads” into non-prime auto lending. These credit unions have learned to:
* Recognize that non-prime used-auto lending is a financially viable line of business; * Reduce the underwriting gap by transferring traditional character lending techniques into an automated decision-making process; * Get in front of dealers by assisting members in finding cars; * Employ a “hard close” to cement bonds with members; * Insure borrowers against events out of the realm of their control; * Export risks by using available loan loss insurance products and guarantees; and * Keep in touch with borrowers by allocating resources to monitor and collect loans at the first sign of trouble.
NCUF will be taking model auto loan programs on the road. “We plan to bring the Steer Clear project to a national scale by adding non-prime auto lending options for credit unions to offer through REAL Solutions,” says NCUF Executive Director Steve Delfin. “By saving used-car buyers thousands of dollars on reliable transportation to work, we hope to create more discretionary income for these low-wealth borrowers. The Steer Clear project has the potential to achieve transformational philanthropy that will strengthen the financial security of households across America,” he added.”