Indirect Loan Solutions

Shane K. Asbel

Table of Contents

I. Title

II. Table of Contents

III. Executive Summary

IV. Introduction

V. The Opportunity

VI. Benefits & Risks of Strategic Solution Option

VII.Final Recommendation

VIII.References

IX. Appendix

Executive Summary Indirect Loan’s are a problem because of their high default risk and lack of education provided to dealer customers who are put into them (Goldbach, 2014). The credit union will provide away to bridge the gap in a compliant, low cost way that will turn these high risk loans into active participants of the cooperative thus increasing income and decreasing risk at the same time.

Introduction

$12,178,055.96 million dollars per month is generated in new loans from the indirect channel on a monthly basis resulting in major growth potential for the credit union on an annual basis (Luzbet, 2014). However, with little relationship or knowledge of the credit union or the cooperative philosophy these newly established members put the credit union at great risk for loss. As members and employees of this cooperative every person in this room should understand that there is a solution that provides a benefit for not only those here but for our members and employees of the entire organization.

Opportunity

Currently GTE Financial is generating over $12 million dollars a month from the indirect loan channel. However, over 90% of these loans are with individuals that have no prior relationship with the credit union thus posing a significant default risk (Burns, 2014). The opportunity here for the company is to add a level of “stickiness” to these members that get them using the cooperative in a more appropriate manner thus reducing the risk for the organization and increasing the value these members receive.

Key Success Factors

• Generation of Consumer Loans

• Relatively Low Cost in consumption of loans

• Dealer Rep Penetration

• Dividend return rate on these loans in the portfolio to date (Saul, 2014).

• Community engagement

Alternatives – What Can Be Done?

• Nothing – This option would leave the cooperative at risk which is not an option if the credit union would like to continue giving value back to its members as it does currently.

• Discontinue Indirect Loan Channel – This option would result in a net loss of $144 million dollars in annual loans which would prevent the credit union from growing enough to add products and services that allow us to remain competitive in the marketplace.

Strategic Solution

• On-Board!– Outbound call team

consisting of existing employees in the community financial centers will be utilized to call every indirect loan to offer appropriate products and services to increase new members participate in the cooperative thus reducing the risk of default on these loans.

Strategic Solutions Analyzed

Benefits

• Less Risk to the CU

• Increased Net Revenue as members take advantage of additional lending solutions

• Increased Participation in the cooperative

• New Member Growth

• Added value to members

• Community Engagement

• Brand Recognition

Risks

• Potential for calls to “fall through the cracks” due to increased lobby traffic

• No guarantee of return

• Need for loan notification platform may cost money

• Cold Calling does not have high rate of return

Final Recommendation

• Based on research conducted with Compliance, Consumer Loan Production, and the Project Management team the approach provides the least expensive with the highest potential for return. It also provides an added source of potential products and services for Community Financial Centers that have production goals. Thus it is my recommendation that the organization move forward with the implementation of this indirect loan solution.

ReferencesGTE Employees

Carrie Burns – Compliance ManagerScott Goldbach – Regional AVP

Bea Luzbet – Consumer Loan Servicing MgrStacey Saul – Indirect Lending Supervisor

Tony Gilkinson – Talent Development Manager

Appendix

• TBD