Superior Consumer LendersDuring the Great Recession

by Ben RogersResearch Director

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Why Are We Here?

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Today’s Environmental Factors

Auto Lending

• In 2006, new auto loans were 18.1% of CU loan originations. In 2010: 10.7%• CUNA Mutual forecast: 2% vehicle loan growth in next two years.• Captives are back.

Bottom line:Focus on recapturing loans; deepen relationships with dealers

Sources: Federal Reserve; CUNA Mutual; Interviews

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Today’s Environmental Factors

Credit Card Lending• Revolving credit fluctuated through summer 2011 but trending up. Credit unions capturing share.• Credit card direct mail solicitations doubled in 2010 from 2009 levels.• Credit unions win on rate, but rewards are the most compelling driver for new accounts

Bottom line:Focus on no-fee balance transfers; promote cards as next product to indirect members.

Sources: Federal Reserve; Acxiom; Bankrate; MSNBC

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7 Habits of Highly Effective Lenders

Sales Culture

Consistent Underwriting

Refinancing

Market Power

Symbiotic products

Direct Lending

Indirect Lending

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Successful Consumer Lending

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Successful Consumer Lending

Methodology• Isolated CUs >$50M• 5% consumer loan growth in 2008, 2009, 2010 (used/new auto and credit cards)• 24 credit unions qualified with just auto• 11 credit unions qualified with all three• 3 CUs showed volatile ROA• 11 agreed to be interviewed. All case studies appear in the full report

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Successful Consumer Lending?

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Successful Consumer Lending.

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7 Habits of Highly Effective Lenders

Sales Culture

Consistent Underwriting

Refinancing

Market Power

Symbiotic products

Direct Lending

Indirect Lending

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1. Sales Culture

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2. Consistent Underwriting

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3. Refinancing

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4. Market Power

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5. Symbiotic Product Lines

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6. Direct Lending

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7. Indirect Lending

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3 Case Studies

Hutchinson Credit Union$170M - Kansas

Baton Rouge Telco Credit Union$194M - Louisiana

Acadia Federal Credit Union$95M - Maine

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Hutchinson Credit Union$170M - Kansas

Sales Culture

Consistent Underwriting

Symbiotic products

Direct Lending

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Hutchinson Credit Union$170M - Kansas

• “Sales conversations” -- Across the desk or on the phone; avoids direct mail

• Detailed product sheets with FAQs for each employee (cross selling factors, relationship suggestions, what to listen for, etc.)

• Cash incentives for mortgages, “stealing” loans, fourth-product sale, GAP, etc.

• “No-no’s” policy

• Superior rates for Tier 2 borrowers

• Emphasis on mortgage

• <10% indirect

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Baton Rouge Telco Credit Union$194M - Louisiana

Sales Culture

Refinancing

Indirect Lending

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Baton Rouge Telco Credit Union$194M - Louisiana

• New loan manager in 2008 with Wells Fargo sales experience.

• Indirect through a local six-credit union CUSO; Baton Rouge Telco buys deeper than others.

• Anything indirect loan less than 650 FICO is an exception; past auto loan key driver of exceptions

• A-paper indirect borrowers get pre-approved credit card offer with welcome letter: 6.9% with no balance transfer fee.

• Active data mining on outgoing payments.

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Baton Rouge Telco Credit Union$194M - Louisiana

• Employees pull soft credit report with new checking “Needs-based” selling

• “Pinching the tail” contests offer employees social rather than monetary rewards.

• Cash rewards for GAP and credit life/disability (“only” $20 to fend off hard sells to members)

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Acadia Federal Credit Union$95M - Maine

Sales Culture

Refinancing

Market Power

Direct Lending

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Acadia Federal Credit Union$95M - Maine

• Small town means loan officers know lenders and vice versa.

•Teaching loan officers how to ask, then asking why they didn’t ask.

•Only 10% of auto loans are indirect.

• Cross selling earns tokens redeemable for corporate wear.

• GAP and warranty sales earn cash.

• Occasional targeted promotions.

• Interest rebates to drive loyalty. Word of mouth is more effective than traditional advertising.

Thank You!

benr@filene.org