SAGINAW, Mich.—Amid analysts’ growing concerns over rising auto lending delinquencies, particularly in the subprime space, a new report suggests that indirect lending led to the recent failure of Valley State FCU.
As CUToday.info reported, earlier this month, the State of Michigan Department of Insurance and Financial Services liquidated the $20-million Valley State CU here and named NCUA as liquidating agent. The $498-million ELGA Credit Union of Burton, Michigan, immediately assumed Valley State’s members, assets, shares, and loans.
Keith Leggett, the former senior vice president and senior economist at the ABA, stated on his Credit Union Watch blog that the “rapid growth in indirect used car lending played a significant role in the failure of Valley State Credit Union.”
Leggett cited the rapid growth in used car and indirect lending at the CU, the growth in delinquencies in used car and indirect loans, and the subsequent spike in net charge-offs in used car and indirect loans. Leggett pointed out:
- Between September 2014 and December 2015, used car loans rapidly expanded by almost 236% from $2.3 million to almost $7.86 million.
- Over the same time period, indirect lending expanded from 11.08% of total loans to peaking at 33.89% of all loans.
- The used car loan delinquency rate went from 3.02% in September 2014 to 30.68% as of September 2016.
- Indirect loan delinquency rates went from 4.84% to 33.35% over the same period.
- In the fourth quarter of 2016, net charge-offs for used car loans and indirect loans were $1.4 million and $1 million, respectively.