Filene Study: How Credit Unions Grew Consumer Loans During Great Recession

By John Dangoia

A Filene Research Institute study published in October 2011 sheds light on how some credit unions managed to actually grow their consumer loan portfolios throughout the Great Recession years of 2008, 2009 and 2010.

These lenders tended to have at least two of seven characteristics that Filene linked to successful consumer lending, such as a strong sales culture, consistent underwriting, effective refinancing/recapture campaigns and well-managed indirect auto lending.

Filene surveyed credit unions of $50 million in assets or more that increased new and used auto loans and credit card portfolios at least 5 percent in each of the three-year Great Recession period. Some respondents also agreed to interviews. Filene published the results, including case studies of 12 credit unions, in the report, “Superior Consumer Lenders During the Great Recession,” by Research Director Ben Rogers.

How to Handle the Indirect Auto Lending Paradox
Rogers overviews the industry’s bleak auto lending forecast, noting CUNA Mutual Chief Economist Dave Colby’s opinion that the downturn in auto sales may be a long-term structural change rather than simply the downside of a typical cycle. So don’t wait for the economy to recover, Rogers suggests. Act now to increase auto loan market share.

Two-thirds of the credit unions studied significantly increased new auto loan volume through indirect programs. In interviews, several executives mentioned the paradox of indirect programs: It’s difficult to establish relationships with members whose only experience with the credit union is an indirect loan, but the convenience of point-of-sale financing rules the marketplace.

The successful indirect lenders offered tactics that have proven effective:

  • Assign relationship managers to work with—and closely monitor—dealers.
  • For credit unions that have the resources, creating an in-house indirect lending platform can provide more flexibility and control.
  • Fund contracts for dealers promptly. This goes a long way toward establishing credibility and goodwill.
  • Consistent underwriting sets you apart from lenders that loosened standards in easy times and then had to drastically tighten the strings during the recession.
  • It’s possible and worthwhile to cross-sell to indirect members. Persistence is the key; it may take a year or more to see results.

Refinance/Recapture Campaigns Blend Good Data Mining with Enhanced Sales Culture
Six of the 12 credit unions interviewed had successful auto loan recapture campaigns. As one credit union leader reported, recapturing loans has provided a steady source of business. These campaigns were especially important for credit unions without indirect programs. Interviewees said good data mining is essential for solid mailing and calling lists. But also, lending staffers must be trained to use the data and ask for the business.

Sales Cultures Built on Training, Setting Goals, Measuring Results, Rewarding Staffers
Although all 12 interviewees spoke of a sales culture as an ideal, seven indicated they were still working toward competency in sales. Interviewees noted some traditional sales incentives and contests that were effective. Loan operating systems that can flag cross-sell opportunities also helped some of the credit unions enhance their sales.

A larger issue, however, appears to be establishing a sales culture consistent with the credit union ethic.

One credit union focuses on person-to-person “sales conversations” with members rather than direct mail. For this to work, staffers must have thorough knowledge of the credit union’s products and promotions. Training and job aids help staffers learn to answer questions and suggest relevant products or services.

This type of “needs-based” sales approach requires lending staff to engage members at every opportunity—face-to-face, on the phone, or via email, text, or online chats.

Perhaps no single lending tactic captured in this research is as important as a credit union’s commitment to focus its entire lending team on a coherent, creative consumer-lending growth strategy. Most of these successful credit unions seem to have chosen to adapt to the economy rather than wait for it recover.

How to Get the Full Report
The full report, “Superior Consumer Lenders During the Great Recession,” is available free to Filene Research Institute members and available for purchase by non-members.

 

John Dangoia is Vice President of Consumer Lending for CUNA Mutual Group. Contact him at john.dangoia@cunamutual.com.

 

Questions? Contact Sales & Marketing Associate Craig Reed: 206.340.4789, creed@nwcua.org.

Posted in Business Solutions, Industry Insight.