The auto lending market is improving from the depths of the last few years and credit unions are increasing their focus in this market to tap into the profit potential, especially as they continue to win over unhappy bank customers.
As application volumes increase for member purchases at dealerships, it is vital for credit unions to remain focused upon the direct auto finance channel as well as the indirect channel. To keep tech-savvy borrowers happy, credit unions need to take advantage of the auto lending capabilities of the online channel through direct auto finance. Today's technology allows members to apply for, be approved and close their auto loans directly from a credit union via a computer or mobile device.
In today's low interest rate environment where lenders are offering rate and term within a few ticks of each other, how can a credit union stand out? Offer convenience, service and security.
Mobile This and iPad That
Consumers are clamoring for the latest and greatest mobile device in an effort to be seamlessly connected 24/7. By deploying a direct auto finance process that includes online loan application, e-signature capabilities and electronic document fulfillment, a credit union can create an environment where members do not need to visit a branch to close the loan if they prefer to do so through their mobile device.
Although much of the population still prefers to visit a branch to do business, credit unions should begin adapting to a world where consumers are comfortable taking care of business from their computers and mobile devices. A borrower does not want to apply for an auto loan and be approved online using their iPad only to be told to go to the branch to get the documents.
The goal is not to decrease branch traffic or reduce the value of face-to-face relationships with members, but to offer the member what they need when they need it. For instance, the growth of mobile banking has helped expand person-to-person, or P2P sales of vehicles. A credit union member can see a car for sale in a driveway, apply for the loan through their CU via their mobile device, and potentially have a decision within seconds. Documents can be delivered quickly via the web and the borrower can immediately start negotiating with the seller. If this instant access to financing was not available, the member could have possibly missed the opportunity to purchase the vehicle.
Direct auto finance represents a strong opportunity for CUs because it provides the chance to provide additional services above and beyond the traditional lending process. One valuable service is keeping members out of long department of motor vehicle (DMV) lines.
Traditionally, the member has been asked to go to the DMV to apply for a title and a lien on the vehicle in closing the loan, as well as to obtain license plates and registration. Services tied to direct auto finance have sprung up where the member can choose to have the DMV process handled remotely through a third-party service that manages the documents and submits them directly to the DMV. Completed documents can be sent to the member electronically or via overnight shipping if circumstances require. What member wouldn't appreciate getting to skip a trip to the DMV?
Nuts, Bolts and Backoffice
Some institutions have shied away from direct auto finance in the past because they didn't want to handle the title work. By offering remote DMV services the credit union benefits since the process helps ensure the lien is perfected on the vehicle title. Having a third-party automate the process and examine titles and other documents helps the credit union, and its member, avoid seller fraud. These services examine titles and confirm the presence of pre-existing liens as well as "hidden sellers" listed on the title but not previously revealed during negotiations. These DMV services go hand-in-hand with the execution of credit union loan documents since the member must complete both as part of the loan closing process.
Direct auto finance also helps credit unions avoid losing loans to "flipping," where dealerships attempt to beat the institution's rate offer to its borrower. Dealers flip consumers out of pre-approved loans every day because the dealer knows the loan has not been consummated - the consumer was pre-approved but has yet to execute the actual auto loan documents. Because of electronic signature capabilities built into today's direct auto finance process, the auto loan transaction can be closed and on the books before the member interacts with the dealer's financing department.
As credit unions strive to grow market share in the auto lending market, direct auto finance should be considered in light of the advent of technologies and services to take full advantage of the online channel and fulfill members' demand for web-based service. The application and closing process should be easy, secure, convenient, and web and mobile device compliant.
Larry Highbloom is the founder, president and CEO of Philadelphia-based VINtek Inc., a provider of automotive collateral management services. He can be reached at firstname.lastname@example.org.