Opportunity for Credit Unions Ahead?

It can be challenging to think strategically when each day brings a new challenge, a new directive, a new mandate, or a new situation impacting your business and the community. The second quarter was a tale of two cities for credit unions. April reflected a precipitous drop in most aspects of the automotive and financial markets, thanks to shelter-in-place mandates and the pandemic sweeping across the country. But May and June told a slightly different – and somewhat better – story. Light vehicle sales were only down 24 percent in June as compared to 2019, year over year. While in a normal year, dealers and lenders would decry that number, this year there was a round of huzzahs! That’s just the world we live in these days.

Credit unions started the year on an upward trend for automotive lending. Average loan amounts continue to increase according to the latest Experian State of Auto Finance Report. In the first quarter, new vehicle loan amounts averaged $33,739, and used vehicle loans totaled $20,723 on average. Buyers also increased vehicle payments, with the average new vehicle payment jumping to $569.

After leveling off through much of May and June, financing rates dropped to their lowest level of the year for the week of July 15 to 4.24 percent, a decrease of 0.09 percent from the week prior. Rates held steady for the week of July 22, but were down 0.36 percent since the beginning of the year and down 0.49 percent from 2019 numbers.


Recognizing Bad Actors

The Association of Certified Fraud Examiners (ACFE) calls it the Fraud Triangle – pressure, opportunity and rationalization. But dealers and auto lenders call it, “Yet one more thing to deal with during the pandemic.” As economic stressors continue and employees are increasingly burdened with coronavirus countermeasures, the risk of auto lending fraud slipping through the cracks grows.  

How can you keep your credit union – and your dealer partners safe? Keep an eye out for the traditional bad actors as well as the new tricks these bad actors are deploying.

During the early days of the pandemic, dealership doors were shuttered and consumers remained sheltered-in-place. The trend toward digital sales accelerated, with dealerships forced to conduct business online and via phone. For Group 1, one of the largest auto retailers in the nation, online-generated sales tripled in May compared to pre-COVID-19 usage.

An online-only platform means verifying financial details and detecting fraud before the deal is passed to the lender has become more challenging. According to a recent report from Javelin Strategy & Research, total identity fraud losses reached $16.9 billion in 2019.  Account takeovers rose 72 percent in 2019, with the criminal taking over a full account in more than half of the instances. When taking over an account, criminals assume an identity with multiple account updates such as:

Business Growth Economy

In A Position of Strength

Looking for a ray of sunshine these days? Consider this…credit unions are in a much stronger financial position to weather the COVID-19 pandemic and the looming economic fall-out versus the Great Recession of 2007-2009. According to the quarterly Trendwatch report from Callahan & Associates, as of March 31, assets held in the United States stood at $1,663.3 billion and capital registered at $193.4 billion – double those respective positions on Dec. 31, 2007. Member relationships were also stronger than those recorded in 2007, proving that at least some lessons were learned from that recession event.

There were also some bright spots in Q1 2020 metrics. Credit unions notched the largest ever quarterly net liquidity increase in Q1 2020 to $50 billion, providing lots of flexibility for strategic moves. This liquidity enabled credit unions to extend an additional $5 billion in credit card lines in the first quarter compared to the fourth quarter of 2019.

Buoyed by consumer confidence early in the first quarter, first time mortgages accounted for over a third of the quarter’s originations. Fixed rate mortgages more than doubled from Q1 2019 to Q1 2020, reflecting historically low interest rates. But a cloud did darken overall loan growth by 1.2 percent for the 12 months ending March 31, 2020 compared to the 12 months ending March 31, 2019.