Lending

Identify & Monitor Indirect Auto Lending Risks

Follow this checklist to build a stable framework for your CU's program.

May 20, 2013
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A successful indirect auto lending program forecasts risk and puts controls in place to monitor and address deviations from your credit union’s plan.

Here is a checklist of items you’ll want to monitor, courtesy Tim Harrington of TEAM Resources:

  • Too many loans too fast
  • Dealer commission too high
  • Falling prey to unethical/overly aggressive dealers who exaggerate borrowers' income, exaggerate borrowers' time on job, or power book – charge for options not delivered
  • Collections department staffing/resources overwhelmed
  • Ability to store/maintain/sell repossessed vehicles
  • Overreliance on a single dealer
  • Inadequate capital for risk
  • Inadequate training/planning

Some warning signs, according to NCUA:

  • CU approves more than 75% of applications
  • CU over-reliance on dealer for credit checks and credit reports
  • Dealer (not CU) accepts the borrowers' loan payments
  • Dealer makes payments on behalf of borrower (could hide past-due accounts)
  • Dealer finances down payment, resulting in member having no equity in collateral
  • Program operating outside CU's normal trade area
  • CU relies on a single dealership or single finance & insurance (F&I) person

Some controls to reduce risk:

  • Portfolio limits (by dealer, total portfolio, etc.)
  • Sensible dealer commissions (dealer reserve)
  • Track FICO averages by dealer by month
  • Inspection of repossessed collateral & comparison to original sales invoice

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Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

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