Tuesday, October 17, 2017

Ask A Risk Consultant: Indirect Lending

By Casey Hunt
In a recent risk and compliance webinar we call “Office Hours," we met with several hundred credit unions to discuss the questions they have with the lending landscape today. 

The vice president of a $765-million-dollar credit union had a great question regarding auto dealerships: What should credit unions be doing to manage due diligence and indirect lending in our dealer relationships? 
Ongoing due diligence for automobile dealerships in indirect lending programs is critical to your program’s success. In fact, in situations where relationships were loosely managed and monitored, credit unions have seen some of the largest losses caused by unscrupulous dealerships and their employees or practices.  

To minimize the risks, be sure to: 
  • Understand how the dealership fits into your member demographics, loan growth and risk appetite strategies. 
  • Have a clear understanding of the dealership’s operational structure, and conduct reviews regularly including on-site visits and sales staff interviews. 
  • Establish appropriate growth goals, concentration limits and minimum standards for creditworthiness. This can include credit score and debt-to-income requirements and loan-to-value limitations 
  • Maintain quality control on the vendor’s program administration, underwriting and contract expectations. 
  • Manage your incentive structure effectively to ensure dealers and staff are focused on loan quality, not just loan volume. 
  • Take early action to revise the dealer relationship if you find that one of your lending relationships shows red flags or adverse performance trends.
This question was asked during our October 5, 2017 Office Hours. For more questions from your peers, watch the full recording. Topics included loan fraud, indirect lending, and compliance issues related to the Home Mortgage Disclosure Act, Military Lending Act, and the Telephone Consumer Protection Act.  

To learn even more about lending risk, or submit your own questions, contact the Risk & Protection Response Center at riskconsultant@cunamutual.com or 800.637.2676.