Indirect Finance: A Tool for CU Growth
By Keith Leggett
Indirect lending is an important tool for promoting loan growth and adding new customers for the credit
union empire builders.
According to credit union Call Report data, 1,449 credit unions had at least $45 billion in indirect loans
on their books as of June 2004.
Credit unions with indirect lending programs have higher auto loan growth than those without because
these programs enable members and nonmembers to apply for financing right at the dealership.
According to Callahan and Associates, credit unions with more than $50 million in assets and indirect
auto lending programs experienced new auto loan growth of 18 percent versus a 6.5 percent growth
rate for comparable sized credit unions without an indirect lending program.
Today, almost 80 percent of all financing for autos occurs at the dealership at the time of the sale.
For some credit unions, indirect lending programs have propelled them into the ranks of the top auto
lenders in the country, or at least in their local markets. In May 2004, Security Service Federal Credit
Union, San Antonio, Texas, was the 32nd largest auto lender in the country. Among credit unions,
Security Service FCU is the largest indirect auto lender, with almost $2 billion in indirect loans.
In Peoria County, Ill., Citizens Equity First Credit Union was the top auto lender in May with a 34
percent share of all autos financed. CEFCU has more than $300 million in indirect auto loans.
Additionally, since credit unions have the ability to sign up new members at the dealership, credit
unions with indirect auto loan programs have stronger growth in their customer base. Credit unions with
indirect loan programs also had a membership growth rate that was almost 50 percent higher than
those credit unions without -- 3.7 percent versus 2.5 percent. In some cases, the dealership buys the
share for the customer enabling the customer to join the credit union.
As Henry Wirz, president of SAFE Credit Union, North Highlands, Calif. -- a $1 billion plus credit union
with a community charter -- said to Credit Union Times, the credit union was gaining 400 to 500 new
customers a month from auto loans made through car dealerships.
This trend is unlikely to slow. For example, the credit union industry in 2004 for the first time sponsored
an "America's Credit Unions -- 80 Million Reasons Why" booth at the National Automobile Dealers
Association's annual convention in Las Vegas to demonstrate credit union commitment to auto
If bankers are going to compete effectively with the credit unions, bankers need to know what credit
unions are doing. Clearly, indirect auto financing is becoming a powerful tool in the credit union arsenal
to wrest consumers away from community banks.
— Keith Leggett
ABA Senior Economist