Dealers Perceive Pick Up From Credit Unions Amid Pullback From Banks

Tight lending standards, decreasing vehicles sales, and a digital-savvy market has one dealer turning to credit unions to “pick up the slack” of traditional lenders, Paul Ritchie, president of Hagerstown Honda and Kia.

“We used to do very little business with credit unions, but now we are doing a lot more than we’ve ever done,” Ritchie said. “They don’t have their hands tied as much from the Consumer Financial Protection Bureau.”

Although the CFPB has loosened up under Acting Director Mick Mulvaney’s leadership, the uncertainty with compliance under the CFPB makes traditional lenders too cautious and some lending standards too tight —  credit unions are serving as a reasonable alternative.

In fact, Ritchie said that working with credit unions is where his Hagerstown, Maryland-based dealerships are making the most money during a time when front-end profit on selling a car is at an all-time low.

“Honda used to sell about 2,300 cars a year,” he said. “Now, that’s scaled back a bit to 1,800 units sold a year.”

He’s able to make up some of those lost profits with service contracts. As unit sales experience a downward trajectory of 4% year-over-year, dealers are trying to make as much as they can on service contracts.

“A lot of traditional banks put a limit on how much you can sell to a customer,” Ritchie said.

However, credit unions are more flexible. Since credit unions worry less about the CFPB, yet their lending standards are still high, credit unions serve as an “additional channel of comparative lending,” by offering more options, said Bob Child, chief operating officer of CU Direct.

Additionally, Ritchie notes a preference for the lending technology at credit unions. Dealers like his are turning to credit unions to provide expedited loans through new technology that also remains personable. 

According to CU Direct’s auto lending platform, credit unions funded 1.8 million loans year-end 2017, generating $39 billion in credit union auto loans, compared with $32 billion in loans funded the year prior.  

“Credit union market growth has come, in part, from the market pullback by some banks and other lenders,” Child said.