SAN ANTONIO—One analyst is seeing a rise in credit union auto loan delinquencies at a time the economy is improving as the result of a “short-term fix” being pursued by some CUs.
Mark Hein, CEO of SWBC’s Financial Institution Group, said at face value that finding may seem “odd.” But when the details are examined, the reasons are clear, he said, with the biggest driver being that many credit unions have had to make loans to lower FICOs to continue to build the portfolio.
“In order to compete and grow their auto loan portfolios some credit unions have had to reduce their thresholds and buy deeper, and that is why we’re starting to see an increasing number of delinquencies in these accounts,” explained Hein.
The news comes at a time when banks have begun pulling back on subprime lending due to rising delinquencies among these borrowers.
No Subprime
Hein said he is not surprised credit unions are buying deeper, but emphasized this does not mean subprime.
“Deeper here means near prime—so a 680 FICO instead of 700—and not the deep subprime where we have been seeing all of the issues.”
Hein said CUs buying deeper is a “short-term fix.”
Mark Hein
“It’s not a long-term play, as credit unions want to maintain healthy delinquency ratios,” he said. “This is why you are seeing more credit unions now focusing on the mortgage portfolio.”
Hein said that the move by some credit unions to buy deeper and therefore experience rising delinquencies, highlights the need to outsource collections—a service SWBC provides to hundreds of credit unions across the country.
“As this credit union auto loan portfolio trend has developed, it’s given SWBC an opportunity to help more of them,” explained Hein. “We do outsourced collections work. So instead of the credit union having to hire another collector to handle the additional workload, they just call us and let us know they are sending us more business. They are not stuck with another employee when this trend goes away.”
Hein said that outsourcing work to a skilled provider is the best way to manage trends as they occur–“especially for trends in which you are not sure what the future will hold,” said Hein.
SWBC provides a number of outsourced services to credit unions, including insurance tracking and insurance sales.
“We act as a first party for our clients,” noted Hein. “This really helps them be more efficient with staffing to accommodate trends.”
Cybersecurity
Gary Dudley
Separately, SWBC President and co-founder Gary Dudley emphasized that beyond those servicers SWBC’s cybersecurity procedures and solutions are at the top of the industry, protecting client’s data.
“We have a cyber security expert who used to work for the Air Force and was at the Pentagon when the attacks on the World Trade Centers happened,” said Dudley. “He is the very best.”
Dudley emphasized the importance for SWBC, and all credit unions, to stay active in their defense of member data.
“Our expert reminds us that if you don’t stay on top of cyber security on a daily basis, it’s not if but when you will be hacked,” said Dudley.