Lenders learn early in their careers that taking a conservative, risk-averse lending position is the best strategy to maintaining a grade A rating and a healthy balance sheet. According to a recent research brief issued by TransUnion and the Filene Research Institute, credit unions are leaning too far on the conservative spectrum of lending, resulting in missed opportunities and undermining their long-standing reputation as the lenders who are best able to help the communities they serve.
The analysis reveals that many credit unions have extremely low delinquency and charge-off rates, signaling that their current lending approach no longer aligns with the true nature of a credit union – to be accessible to all people, regardless of credit profile. Through interviews, qualitative and quantitative data, many credit unions reported to TransUnion that they were losing valuable business for the sake of maintaining an unrealistic number for delinquencies and charge-offs.
We have officially turned the page into a new year and a new administration. Lessons learned from 2020 are still fresh, and there appears to be plenty of momentum on various financial fronts that lend to a positive outlook. Here are some key points to consider.
Key Points
The Federal Reserve has indicated it plans to keep interest rates at near zero for the next two to three years. Pending a third stimulus package, improved employment numbers, heightened consumer confidence, and the pace of the recovery, it’s possible that we will see auto lending growth as early as Q2.
According to a recent TransUnion 2021 consumer credit forecast, the financial institution found that consumer access to credit cards and personal loans is expected to rebound through the first half of 2021 while new auto loans will shift toward lower risk consumers. Despite potential obstacles to the consumer credit market, TransUnion foresees positive trends buoyed by expected improvements in macroeconomic factors such as unemployment and GDP.
Contributing Author: Brien Joyce Vice President EFG Companies
You’ve implemented strong technology solutions to provide dealers with automatic approvals and denials. You’ve created robust mobile applications to foster strong relationships with consumers. You might even have gone completely digital with all loan services. In the race to provide dealers and consumers with instant credit descisioning, have you lost the human element of building relationships?
According to J.D. Power and Associates’ 2017 U.S. Dealer Financing Satisfaction Study, lenders need to refocus on communication and dealer relationships. This annual study measures dealer satisfaction with auto financing providers, based on application and approval processes, provider offerings, and sales rep relationships among other factors.
It’s time to get back to basics when it comes to developing business relationships, especially with auto loan originations on the decline. TransUnion announced that auto originations fell for the third consecutive quarter in their most recent quarterly Industry Insights Report.
So, what does it take to develop strong dealer relationships? When pondering this question think beyond quick loan descisioning and interest rates. It takes superior service and a strong value proposition.
When an F&I manager calls about an application, are they met with a phone tree or an actual person?
Are your loan officers courteous and respectful when speaking with dealership personnel?
If your system flags a loan application as incomplete, do your loan officers just ignore it and assume the dealer will figure out the mistake when no funding decision is made, or do they proactively call dealers to address the application?
Does your auto financing department operate on dealership hours or banking hours?
When your representatives visit dealerships, do they just drop off donuts and coffee, or do they make a point to sit down with dealership management and discuss how your institution can be a better partner?
How often does your institution proactively provide in-person training and updates on your loan requirements, taking into account the high-turnover nature of retail automotive?
Aside from APR, how is your auto loan different from the competition?
Do your loans make it easier for F&I managers to upsell consumer protection products to boost their margins?
Do your loans provide consumers with value that insulates them from significant impacts to their savings?
