Credit Unions May Shine Through Today's Lending Gloom
By Michelle Krebs October 28, 2008By Dale Buss
Observing the reactions by other automotive lenders to today's mess -- ranging from extreme cutbacks to mere caution -- the nation's credit unions have a dual opportunity. They can take on a leadership role in maintaining the flow of credit through the U.S. car industry and pick up a significant chunk of market share to boot.
That's certainly the aim of Tom Shafar, loan manager for the TAPCO Credit Union, in Tacoma, Washington. "We haven't changed our rates or fees or standards in months, and we're still underwriting just as we did before," he said. In fact, Shafar added, the institution for city and county workers actually granted a few more car loans to its members in September than a year earlier. Only demand for TAPCO loans by non-members, Shafar said, were down slightly.
Already, about half the fixed-term loans of the nation's 8,100 credit unions are for automobiles, not including the vast amount of home-equity loan proceeds that also go toward vehicle purchases. Credit unions have plenty of capital and liquidity these days. And nearly 90 million Americans are members, many of them grateful for these islands of stolid conservatism amid the roiled seas of financial services.
"There's a very high loan demand for credit unions right now, and in some ways we're struggling to keep up with it," said Pat Keith, vice president of the Credit Union National Association (CUNA), in Washington, D.C. Credit unions' loan-to-savings ratio is nearly 85 percent right now, he said, compared with a more typical 65 percent to 75 percent.
Yet so far, much of that growing demand is for business and mortgage loans; credit-union balances in new auto loans actually have declined over the last year, said Michael Schenk, senior economist for CUNA, based in Madison, Wisconsin.
Some of the stagnation has been due to the extreme attractiveness of the cut-rate loans offered by the OEMs'captive finance arms. "Another part of it is an awareness problem," Schenk explained. This has been compounded by the fact that local credit unions have felt compelled lately to emphasize the safety and security of member deposits above any other message, he said.
But "it also takes people who are ready, willing and able to purchase cars," Schenk said. "We're certainly ready, willing and able to lend money." In fact, one auto-dealership group in Wisconsin has begun urging consumers to go to credit unions if they're seeking vehicle loans.
Credit unions are in position to step up these days in large part because of their very composition: They are not-for-profit entities formed by groups of employees for the sole benefit of the membership. Among other things, they stayed out of the subprime markets for mortgages and car loans.
"We hold almost everything we originate in our own portfolios," Schenk said. "So we care ultimately what happens to those loans. In contrast, the mortgage brokers and big banks that originated and sold [mortgages bundled as securities] didn't really care what happened to them."
Credit unions' loan rates "are extremely competitive," said Jesse Toprak, executive director of industry analysis for Edmunds.com, "and applications aren't based solely on credit scores." Consumers who have average or below-average credit scores, he said, "especially can get great rates from credit unions if approved."
Photo from TAPCO Credit Union Web Site
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