Credit unions have maintained tightened underwriting standards as the ongoing COVID-19 pandemic presents unknown risks and government stimulus payments come to an end.
Unlike banks and other lenders who loosened their underwriting in the second quarter following a year of historically tight standards amid the pandemic, credit unions have held fast. “When the market gets tighter, credit unions are really good at sticking to their knitting,” CU Direct Chief Revenue Officer Phil DuPree told Auto Finance News.
Credit unions remain on guard for potential risk and market disruption as many consumers lose the safety net of stimulus checks, DuPree said.
As a result, credit unions report their members’ average FICO score increased to 741 in Q2 from 735 during the same period a year ago, according to CUDL. The average FICO also increased year over year in the second quarter industrywide to 724 from 722. The bump in reported FICO scores is a result of higher lending standards and improving scores from members, credited in part to stimulus checks that allowed consumers to make payments and decrease delinquencies, DuPree said.
Fewer loan defaults and larger deposits — which continue to grow at a historically high rate — have left credit unions with “plenty of money to loan out,” DuPree said.
However, stimulus checks can’t last forever, and new-vehicle prices are on the rise as supply chain issues continue to plague the industry. Average new-vehicle prices at credit unions grew $1,000 YoY to $40,200 in Q2, while in the auto industry overall, average new-car values went up $800 YoY to $37,000.
To accommodate rising prices, the auto finance industry is moving toward longer terms to make monthly payments more affordable. The credit union term average sits above the industry average at 73 months but remains below 76 months during the same period last year. The industry average is 71 months, up from last year’s 69 months.
When stretching terms, credit unions must also consider the value of the vehicle at the end of those longer terms, DuPree said.
As the pandemic continues to bring risks of inflation, unemployment and payment shock into the market, “credit unions will [continue to] tighten up those standards and make sure they don’t expose undue risk,” DuPree said.
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