Oregon Community Credit Union is experiencing an increasing volume of originations in a market where auto lenders are scrambling to increase their marketshare, Chief Credit Officer Jerry Liudahl told Auto Finance News.
The credit union’s originations year to date are “are running about 26% ahead of what they were a year ago,” he said, and this growth is expected to continue into next year.
In part, this success can be attributed to the credit union’s commitment to serving a prime loan consumer base, instead of caving to market pressures to gamble on subprime consumers, Liudahl said.
“OCCU has never been a very strong player in subprime, and we don’t have any desire to be,” he added. “With our indirect program, we have not had to chase [the subprime] market in order to generate volumes, and for lenders that do, some have had disaster down the road, because they don’t tend to manage the [subprime borrowers’ payment collection] appropriately.”
Handling subprime borrowers is more complex a task than many are willing to admit, Liudahl said. “The way to do subprime and be good at it is that you have to have underwriters that know what they are doing. Then, when it comes to how you collect on that business it’s difficult because you can’t treat them like prime borrowers. … I don’t know any credit unions off the top of my head that have done that successfully.”
In fact, unlike some lenders, OCCU has no intention of altering its business practices to chase that segment of the market, such as changing its underwriting. “Our drop-off is consistently low,” Liudahl confirms, in large part because “I have not seen anything that says that the rise of delinquency is coming from the prime business; it’s coming from the subprime business.”
In the prime market, “I don’t see a rise in delinquency,” and because OCCU focuses on prime borrowers “I don’t think that we are seeing a difference in delinquency rates,” he said.
Additionally, the company chooses to avoid engaging in longer-term loan contracts with borrowers. “We have drawn the line at 84 months on auto loans,” Liudahl said. “The majority of our consumer base does not need those longer-term loans.” For this reason, OCCU’s growth has not been harmed by the fact that the credit union does not cater to the subprime market.
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