May 11, 2022 Case Studies
Did you know that 28 million Americans have files with insufficient data to generate credit scores, and another 25 million Americans have no credit file at all? (Source: FICO) As good corporate citizens, lenders are responsible for discovering who of these credit-invisible potential borrowers they can lend to, providing wealth-building opportunities and earning a commensurate profit for the risk.
Open Lending is built upon helping lenders say ‘yes’ to more automotive loans. Kevin Willborn, VP of Consumer Lending at Gesa Credit Union, shared that Gesa chose to implement Open Lending’s Lenders Protection™ program because they “wanted to buy deeper paper […] but still maintain the same margins.” Additionally, they needed a solution that offered fast turnaround times. With the program’s automated decisions in seconds, Willborn said, “Lenders Protection™ was one of those things that felt too good to be true.”
We have repeatedly heard the “too good to be true” comment about Lenders Protection™. Yet because our unique auto lending platform leverages data and sophisticated, customizable analytics to help lenders better serve people with thin to no credit files, it truly benefits everyone involved.
Jeremy Sankwich, VP of Consumer Lending at CapEd Credit Union, also discussed how CapEd got started with the program, revealing, “I bought in immediately because we could see how strategic it was for growing our portfolio. We leaned in a little bit. We’re […] a conservative credit union, so [convincing] us to buy deeper was a challenge. Lenders Protection™ helped us convince the CFO that you can mitigate some of that risk, and you can also help more members; that’s […] the value we saw. Our credit union really embraces this program.”
Open Lending is so confident in our platform’s capabilities that we provide default insurance for these loans. Our clients can expand with whom their financial institution can make auto loans while mitigating their risk. This program allows institutions to approve more of the auto loan applications they are already receiving while making them a superhero by serving those who would otherwise have difficulty getting the car loan they need.
A poll conducted by the Morning Consult in 2021 found that 10% of Americans are unbanked, and 24% of Americans are underbanked. This means they are having a much more difficult time applying for and receiving an auto loan from financial institutions that use traditional scoring methods to determine creditworthiness. Often, they are left to try predatory lenders and high-price Buy-Here, Pay-Here automobile dealers.
The Consumer Financial Protection Bureau has responded to this sizeable unserved population by encouraging lenders to develop innovative means of increasing fair, equitable, non-discriminatory access to credit, particularly for those limited by their credit history. We expect the CFPB to become much more active in the future, as the current director has indicated.
Lenders Protection™ is an innovative answer to this need and can help keep regulators at bay. Our proprietary data analytics platform and A-rated default insurance allow our clients to earn 300% to 400% higher ROA on average versus their prime auto loan portfolio. And more unserved and underserved consumers can affordably get the car they need.
Gesa’s Willborn recalled their first meeting in 2018 when its CEO, CFO, and Chief Risk Officer spent hours reviewing their concerns with the Open Lending team. Wilborn said there was not a single question Open Lending could not answer, which made Gesa comfortable committing to the Lenders Protection™ program.
Willborn explained that the keys to Gesa’s partnership have been successful business practices and Open Lending’s personal touch. He elaborated, saying that Gesa can call their account manager at Open Lending, and know they will handle any request quickly and professionally. “There’s nothing that we have ever asked that has not been done,” Willborn said of Open Lending. He added that they will also ask about you and your family. “That’s the great thing about having a partnership with Open Lending. We’re family.”
CapEd’s Sankwich also shared that although CapEd is a conservative credit union, with the Lenders Protection™ program, the credit union recognized the ability to “mitigate some of that risk [and] help more members. That’s really the value we saw.”
Sankwich added, “Lenders Protection™ is a really good strategy for us to help more borrowers, grow our portfolio, and mitigate all that A paper with some better yield.” The platform’s data analytics helps institutions price loans just right to achieve their desired yield while ensuring an applicant’s creditworthiness.
“Lenders Protection™ allowed us to continue helping those borrowers and feel confident that we were protected because we had that partnership,” Sankwich concluded. “I think the biggest thing from a new Open Lending client perspective, wanting to join Lenders Protection™, is you have to go all in. You have to be committed to it long-term.”
By leveraging Open Lending’s Lenders Protection™ lenders can mitigate risk while lending to lower credit score applicants and earning a greater return. Lenders Protection™ truly benefits lenders and potential borrowers who might have a ding – or two – on their credit score or no credit score at all.
Open Lending has helped hundreds of lenders, like Gesa Credit Union and CapEd Credit Union, increase auto loans and improve their profitability by saying ‘yes’ to more automotive loan applications they are already receiving – no additional marketing required. Our proprietary platform allows financial institutions and other auto lenders to model their specific overhead and funding costs and set a target ROA for their insured portfolio. The lender maintains all the control they want and need. The result is a profitable auto loan portfolio with carefully managed pricing and risk characteristics.
It is an intelligent balance that allows lenders to buy deeper while increasing margins, mitigating risk, and enabling fast response times while improving access to fairly priced credit in underserved communities. Lenders Protection™ is an excellent fit for lenders of all sizes and features no up-front costs. Lenders only pay for the loans they choose to insure. And your institution can be up and running in 45 days! When you’re ready to ‘go all in,’ so is Open Lending.
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