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Indirect Lending Important for Growth, Say Banks and Credit Unions

November 03, 2009

MINNEAPOLISIndirect lending will be critical to the overall growth of U.S. banks and credit unions during the next two years, according to a survey by Wolters Kluwer Financial Services.

With auto loans becoming more attractive to some lenders following the mortgage crisis, Wolters Kluwer conducted research to get a broad view of banks’ and credit unions’ indirect lending activities in the future. The survey, conducted in September 2009, showed that more than half of 146 compliance officer and consumer lending officer respondents (53 percent) feel that indirect lending will be critical to the overall growth of their organization during the next 24 months. Credit unions were more likely to express that attitude than banks. More than 60 percent of the credit union respondents expect indirect lending to be critical to their organization’s growth.

As lenders look to do more business in the indirect lending space, they must also carefully assess what is needed to manage their growth. A key part of that process is identifying the risks associated with doing business with third parties, including auto, marine and recreational vehicle dealerships.

“Risk and fraud prevention are critical in helping avoid problematic vehicle loans that can hurt a lender in the future,” said Lee Domingue, CEO of indirect lending at Wolters Kluwer Financial Services.

Lenders surveyed said their top concerns when working with dealerships to process indirect loans include: incomplete loan documentation, lower quality applicants, and dealers’ compliance knowledge.

“Lending institutions — particularly credit unions — can see a benefit in expanding their presence in the indirect lending market,” said Domingue. “However, this research shows dealerships that lenders, regardless of size or type of organization, really have the same concerns when it comes to financing vehicle loans. It’s important for dealers to be proactive in addressing those concerns if they want to build and maintain strong lender relationships.”

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