Is Your Credit Union Equipped to Operate a Profitable Indirect Lending Program?

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By Kurt Howard, Executive Vice President, CUAC

In late 2016, we were fortunate enough to be contacted by Chris Hay, President & CEO of Dannemora Federal Credit Union in Dannemora, New York, regarding their exploration efforts into whether an indirect lending program would be a good fit for their credit union. Chris had many of the normal concerns that we encounter when working through the discovery phase with prospective clients: 1) Will we be capable of offering a complete indirect program to our dealers and members with existing staff? 2) Do we have the capital to invest in the hardware, software and other technology infrastructure to implement a program that meets industry standards? 3) Do we have the appetite for the additional risk normally created with an indirect program? 4) How do we control the operating costs of the program?

Offering a robust indirect lending program with existing staff members can be tough for a small to moderate size credit union. “We had a great staff of lenders and back‐office personnel here at the credit union,” said Chris Hay. “We were very confident in our staff’s ability on the direct side; however, we knew indirect lending was an entirely different animal. We were looking to partner with a company that had been in this space for a long time and doing it well. We were confident after speaking to CUAC that they were in fact that company. Their staff members have a vast amount of experience in indirect and are capable of handling anything thrown at them by dealers.” After speaking to Chris and his team, it became apparent that the CUAC Full Service Program was a good fit for their organization. This option allows the credit union to focus on their direct business while allowing CUAC to operate the key aspects of the program. This includes all important components such as dealer due diligence, underwriting, compliance, discounting and funding. “We really liked the plug and play option with the full service offering,” Chris mentioned. “The indirect has become a great compliment to our lending goals and we have seen some terrific results including a significant number of loans with existing members who preferred the ease of taking care of the financing at the dealership.”

The initial investment into a new service or product offering can be a daunting prospect for credit unions – especially in this day and age when ROI is so important and loan margins are razor thin. “Costs were key when we started looking into an indirect lending solution,” Chris said. “We did not want to invest the money or resources into new hardware or software; but, we also wanted to make sure we had access to industry-standard technology such as DealertrackRouteOne and eContracting.” With CUAC’s Full Service Program, there is no investment needed from the CU for software, hardware [sic] of application platforms. This is a plug and play solution that offers credit unions all of industry leading technology without any of the cost. According to Chris, “We were shocked that CUAC could plug us directly into an indirect solution with no up‐front cost or long‐term financial commitment. Doing it ourselves would have required a heavy investment into software, application platforms, etc.”

Controlling risk is at the top of every credit union’s list of concerns when determining whether an indirect lending program is a good fit for them. The industry is littered with horror stories about indirect lending. Credit unions getting in over their heads with risky loans, being manipulated by dealers, not pricing loans according to risk, not doing the proper due diligence on dealers and paper quality…the list goes on and on. “Risk was something we were incredibly concerned with at Dannemora FCU,” Chris added. “We knew there was an elevated level of risk associated with indirect lending. Obviously, there is the dealer element; but, we are also dealing with a lot of new members which we do not have a relationship with yet. We had to make sure that all of the proper controls were in place so that we mitigated risk to the best of our ability. In the 2 plus years since partnering with CUAC, we have seen an incredibly low level of loss and the portfolio is performing better than expected. We have been able to grow at a responsible pace, maintain a very low level of risk and pick up a lot of new members in our community.”

Ongoing costs of an indirect program can be cumbersome if not maintained properly. One of the key components of the CUAC Full Service Program is that there are no costs unless a loan is funded. No monthly costs, subscription or maintenance costs, credit bureaus, software, etc. All of the operating costs are absorbed by CUAC and the only time there is a fee to the credit union is when a loan is funded. “The ability to control costs was a key component of our decision‐making process,” Chris noted. “We knew from doing our research that costs for staff, software, applications, credit bureaus and other fixed costs could become a problem – especially if the dealers were not managed properly. CUAC took the worry out of that for us. The onus to manage look to book, paper quality and ultimately costs is on them. We know what our costs are upfront and will know exactly what to expect based on our desired production. That combined with the ability to adjust our pipeline on a monthly basis helps us control not only volume; but, costs as well. CUAC is also able to provide us a great deal of best practices along with price modeling tools to ensure that we are not making loans just to make loans; but, they are profitable as well. We could not be more happy with our decision to go with CUAC for our indirect lending goals.”

CUAC is proud to have Dannemora Federal CU as part of our family and is looking forward to a very long and fruitful partnership. We thank Chris and his team’s faith in our ability to help them achieve their lending goals.

Interested parties should reach out at or online at

Is Your Credit Union Equipped to Operate a Profitable Indirect Lending Program?

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