By John Flynn, CEO, Open Lending
Following the economic crisis of 2008-09, Leaders Credit Union found itself flush with cash, so the credit union made the strategic decision to push itself toward a 100% loan-to-share ratio, Executive Vice President Spencer Pratt explained. Leaders turned to Open Lending and its partnership with Allegro Lending Suites to help make that happen.
During our Be Your Members’ Hero, Say ‘Yes’ to More Loans webcast with business partner, Allegro Lending Suites and hosted by NACUSO, Leaders shared how it earns a 2.8% spread on indirect loans made through the partnership and converts the 80% of indirect loans that go to new members into multiple-product users at a rate of 30%!
“When we first started exploring starting our own indirect program, we were really just trying to offer our members a convenient option to finance dealership and hopefully retain that relationship,” Pratt said. “We had no clue just how many auto loans were being originated at dealerships or even worse, how many of our own members were choosing financing and surprisingly, the dealer was not choosing to return them to us.”
The credit union was approving loans below a 640 credit score on the direct side, so the concept of near prime was not new, but it was more conservative on the indirect side. However, once they began working with Open Lending and Allegro, those figures jumped tremendously, according to Leaders CU Vice President of Indirect Lending Trent Taylor.
Taylor continued that dealers were happy to be getting more approvals from Leaders, so they received more loans up and down the credit scale, and they particularly appreciate the faster turnaround times as well. Before working with Open Lending and Allegro, decisions on loans to credit-challenged members were taking six to seven minutes; after, it’s six to seven seconds. Also, the faster decisions meant more loans got in front of members and Leaders is saving about 20 hours per month by using the program.
Open Lending Vice President of Channel Partnerships Julie Nielsen followed up during the webcast, “One of the key markers that I appreciated being in the stats you just shared is that you were already getting the applications in this range, and you were approving a lot of them but maybe on conservative terms.
What the Open Lending Lenders Protection program does is helps Leaders to say ‘yes,’ to more of these loans, because the default insurance is part of what makes the program work.”
Open Lending’s program is highly customizable so financial institutions can choose what credit ranges they want to serve, what they want their ROA to be and more. The decision engine takes into account all types of alternative data so that credit unions have a more complete picture of the borrower to make a more competitive loan offer.
“The keys to the Lenders Protection program are really a three-legged stool,” Nielsen said. “One is the underwriting engine, driven by number two, the risk-based pricing model. And finally, the default insurance. She shared the example below during the presentation, demonstrating the payoff for a defaulted loan.
Because Leaders actual retails most of its repossessions rather than selling them at auction, its able to reach in the up 80 percentages, earning more than enough to cover its piece of the loss.
After talking through the parameters a credit union wants to set up, ILT Vice President of Business Development Pete Vehko said, turning it on is just the flip of a switch in Allegro to get started.
Integration is simple, he emphasized, and it allows credit unions to shorten their response time to dealers, enables credit unions to help more members with greater returns and build loyalty with members – truly becoming their hero.
Pratt added that Leaders has been particularly successful in cross selling to this group of members that came in through the indirect channel, “to the point we all had to back up some of the offerings we were giving out in this group. In this credit tier, a lot of these individuals don't have other options or the options they do have are not as good as credit union options. So, when we were talking to them, we found they were very open and receptive to talking about additional products and services.”