Embrace Subprime Borrowers

By Bill Merrick

Serving C, D, and E members boosts loans and income, and helps those who need it most.

Razor-thin margins on A-paper auto loans and the growing number of consumers with impaired credit records mean credit unions should look closely at entering into the subprime arena, a lending consultant told attendees of the CUNA Lending Council Conference in Miami.

Credit unions are “stabbing each other in the back” with low-rate auto loans aimed at top-tier members, says Brett Christensen, owner of CU Lending Advice and former vice president of lending and sales at Clark County Credit Union in Las Vegas.

He cites a credit union client that recently made a $20,000 car loan with a 30-month term and a 1.3% interest rate—and stands to make only $341 in interest. “They’re giving away money.”

In contrast, another client recently made a $16,000 auto loan with a 72-month term at a 15.9% interest rate. The credit-impaired member will pay $9,000 in interest—and get out from under a 22.9% rate at a bank.

“You have to do the math at some point,” says Christensen, who believes credit unions should embrace C-, D-, E-tiered members—not only to grow loans and income, but to serve a greater swath of members.

“These members have the greatest need and the fewest options,” he says. “And if you help D and E-paper members, they will be very loyal. Can the same be said of A-paper members?”

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