... Fast Eddie Facts?
You can't make this stuff up! Or can you?
It's clear from the recent "mea culpa" pullback from 5-tiers to 3-tiers on race based lending (RBL), that the SECU Board knows it made a bad decision. How did that happen?
One culprit appears to be that the SECU Board was "sold" some Fast Eddie Car Lot statistics ("Fast Eddie Facts" or "FEFs") by the CEO and loan administration staff.
The "We're not serving A-paper borrower" fiction is disproved by staff's own data [see prior post here]. 247,000 SECU borrowers were A-credit score folks before RBL and owed more than the "C/D/E" folks combined!
The SECU Board was further misled by the presentation of credit bureau data, which showed the amount of borrowings SECU members had with other creditors [didn't know that the credit bureaus sold your private borrowing data, did ya'!]. The "FEFs" claim from loan administration was that race-based lending would bring all of that member borrowing back to SECU.
✅ Let's take a quick look at one easy example - new auto financing - of why members often choose other lenders - and why they won't be "coming back".
The chart below (which comes from a credit bureau!) shows where people finance their new car purchases. You'll note that 61+% of folks finance their new car purchases at the dealership, only 10% finance with a credit union. The credit bureau notes that the dealership dominance in this sector (61+%) has been steadily increasing.
Most folks don't realize that when you finance a new car at a dealership, the car finance department has a long list of rates from different banks which the dealership is authorized to offer you. If you chose one, the dealership completes the loan papers on the spot, on behalf of the bank, and the approved loan is sent to the bank - and you'll make your payments to that bank. 61%+ (and growing!) of all new car buyers chose this dealer financing method.
✅ With the introduction of race-based lending, the SECU Board was seduced into believing that SECU could "win back" much of this A-paper new car borrowing. That will not be true. Here's why!
😎 Picture your little "A-paper self " sitting in the dealership, having selected a bright and shiny new car. You've haggled over the trade-in, agreed with your spouse - excited kids bouncing in lap - to color and heated seats. You're eager to get behind that wheel! It's been a long day, kids are restless, getting hungry. Spouse has "that reaching boiling point look". Excitement plus, everyone's ready, anxious to hit the road! The dealer leans across the desk and asks if you need financing? You say no, I'm going to use SECU [SECU's current "best", A-paper, 60 month new car rate is 6.00%].
✅ The car salesman sighs and says that's fine, but it will take some time to set up. Or, he can offer you the following rate right now from BOA and you can be on your way home in 10 minutes:
👉 
Fixed rates [as of 5/23/24] 60 months - New car (dealer) rate 5.94% APR**
... why bother to wait and "pay more" at "your" credit union, if SECU is no longer a "unicorn"?
It used to be that SECU would beat any interest rate the dealership offered when buying a new vehicle. So for a long time, people would finance through SECU. That's not the case anymore. You can most of the time get a better rate at a dealership. Also most always have a zero down and really low apr, though it is for well qualified buyers but that's the A paper people correct?
ReplyDeletehence the 61+% (actually surprised it's not more) ... pretty sure they run the numbers and know exactly what every financial institute offers ...
ReplyDeleteThe even larger issue is when the salesman goes to the finance manager to get the "best deal" they have no obligation to show you all the choices, just the one they determine is the best. If there are two rates that are close but one of those banks gives a greater kickback to the dealership, that is the one you get.
ReplyDeleteYou post is timely, there is talk of making loans through dealers now that RBL is in place and A tier rates are competitive. members will select us now if they have that option at the point of sale.
ReplyDeleteThat only makes sense if SECU is willing to pay dealerships kickbacks. So would the interest rate be a little higher to offset the cost of 1 or 1.5% fee to the dealership. So $20k x 1.5% = $300. $20K x 6% = 1,200 a year in interest so that loan would not be profitable (if that is the goal) for 4 months.
DeleteAlso the detachment from the members and the trust you are giving to dealerships...Risk is a lot higher.
That would be another bad move by SECU and delinquency will increase even more. Dealership only wants a sell, loosing that personal touch and having the discussion with the member.
DeleteSlowly trying to make the Loan officer job irrelevant so they can cut costs
DeleteIf they outsource that work…it shows they do not give a rats a** about our jobs.
DeleteThis is another symptom of late stage capitalism. Ignore the workers that work for SECU and just automate it and let the dealership do our jobs🖕 technology is great folks but it’s terrible when it’s leveraged against workers who need this job to make ends meet! Let us take those calls and do those application! No need to have a damn dealership do my job for me.
DeleteSVP and VPs need to put their FOOT DOWN if that is the case. We shouldn’t be outsourcing our workers labor to a dealership who only cares about making a buck off our membership?
DeletePuts a middleman between SECU and the member
DeleteI see you do not want to allow posts that make corrections, like the FACT that we are not planning on doing indirect lending. Shame on you.
ReplyDeleteSorry to be slow in posting statements like this. The past couple of years, SECU leadership has not established a reliable reputation for being transparent nor forthcoming... bizarre hiring decisions, the "no formal proposal, proposal" on LGFCU merger; no plans for regional expansion, open membership legislative lobbying, incoherent commercial lending iniative, "no tech changes since 1983", all speakers at annual meeting had scripts written by someone else, "most profitable year ever" boasting for a non-profit, never quite announced career path for employees, soaring expenses, losses and delinquency, 5-tier to 3 tier "improvement"... that's the short list.
DeleteSorry George (Santos), ... for the continuing hesitancy ... and growing doubt.
So you can comment on indirect lending. You have any input on our discriminating RBL? In my many years of lending, we have always gotten paid by the majority of our members with a credit score below 600. It’s not about the numbers, get to know your members folks.
Delete"Shame on you." ... LOL SECU owns the Hall of Shame ...
DeleteThe question is how many A tiers have a loan somewhere else. is that in your data?
ReplyDeleteWould say that you miss the point of the graph and also miss the false assumption sold to the SECU Board by loan administration.
DeleteLet's try again. The independent graph (from Experian, a credit bureau) simply shows that of all borrowers 61% choose to finance at the dealership. The example was to show why folks do that - dealerships make it more convenient and quicker; and, as of right now can offer a better rate to SECU A-paper borrowers from BOA (and others!) than offered by SECU.
Car folks are also some of the best sales professionals on the planet and can offer various incentives as well as "special adjustments" to the buyer on the trade-in or price of the new car.
Would say you're in la-la land if you believe a less convenient, higher rate loan is convincing to an SECU member. Really? Why?
The SECU Board was misled into believing those folks are coming back to SECU...the "Fast Eddie" in this case was not the car dealer!
From a commenter: "The mix of C-E is basically non-prime or sub-prime and is why losses are so high. We were a lender of last resort to higher risk borrowers by giving them loans at a rate they couldn't get in the market."
ReplyDeleteActually SECU was a lender of "first resort" to "the mix of C-E" SECU borrowers, not last! And loaned effectively with well controlled losses because SECU didn't treat them as "non-prime or subprime" human beings.
Its this current insulting, petty attitude, Neandrathal wisdom and disdain for members which is at the root of soaring loan losses.
Not to mention discriminatory lending, market mis-pricing, centralized collections, and operational snafus...which are costing the membership tens of millions ... other than that the "analysis" is insightful... mirror, mirror!