Volume declines spur Crescent Bank to furlough auto staff, tighten underwriting

Subprime lender Crescent Bank & Trust has tightened its underwriting policies and furloughed a “significant” number of its staff as dealership closures across the nation have reduced the company’s origination volumes, Chief Lending Officer Donald Howie told Auto Finance News.

“In some of the larger states we do business in, the volume has reduced to almost zero,” Howie said, noting that Michigan, New York and Pennsylvania have classified dealership sales as “nonessential” businesses. New Orleans-based Crescent Bank has 6,500 dealer partners in 32 states, with the majority of its dealer network being franchise new car dealers, he said.

Crescent Bank has not yet deactivated any of its dealerships at this point, Howie noted. The lender, however, is monitoring its dealer network as the coronavirus pandemic has created a situation in which they may go out of business, which would place stress on the lender’s cash flow.

However, the bank isn’t concerned with liquidity drying up because it secures its funding through certificates of deposit, which are insured by the Federal Deposit Insurance Corp.

Crescent Bank originated $342 million of auto loans in 2019, and has a managed portfolio of $766 million. The lender had 504 employees across 16 offices with total assets of $962 million at yearend 2019.

While Crescent is a small player in the subprime market, it is one of the first to reduce its staff significantly as vehicle sales and origination volumes plummet in the auto finance sector as a result of the COVID-19 economic crisis.

“We reduced staff on the origination side: sales, credit and funding,” Howie said. “This is the side of the business responsible for originating volume and where there has been negative impact to staffing.” On the other side of the business, collections is “all hands on deck to keep customers in their vehicles,” he said.

With jobless claims reaching a record 10 million in just two weeks, it is likely that several small scale subprime lenders start credit-tightening. Crescent Bank is adjusting its minimum Fico score and loan-to-value ratios, and requiring larger down payments from customers.

Typically, the lender accepts a minimum of a 450 Fico score and combined household income of $2,000, according to the company’s website. It also offers a minimum $1,500 guaranteed backend for warranty or guaranteed asset protection if the customer elects.

“We haven’t made any changes yet on minimum income, but we definitely have had discussions about it,” Howie said. “We’re seeing a lot of movement in this area with the other lenders.”

Prior to the coronavirus pandemic, Crescent Bank was on a growth trajectory expecting to increase originations to $400 million this year and $500 million by 2021, Howie said. While tighter credit policies and subsequent reduction in origination volume will hinder the bank’s growth, the operational changes made this week may help the return to growth mode as soon as possible, he stated.