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SEARCHThe National Credit Union Administration issued a risk alert last month warning of third-party indirect lending and participations. Since September 2004, the NCUA has noticed an increase in credit unions engaging in indirect, outsourced and subprime lending for auto loans.
The National Credit Union Administration issued a risk alert last month warning of third-party indirect lending and participations. Since September 2004, the NCUA has noticed an increase in credit unions engaging in indirect, outsourced and subprime lending for auto loans.
There is "heightened concern" that the credit unions involved in such lending may not have appropriate controls or effective monitoring in place, according to Automotive Digest.
The NCUA acknowledges that subprime lending can be an acceptable segment of the lending portfolio, but adopting third-party subprime underwriting criteria without proper evaluation is unsafe.
The alert warns credit unions to limit the authority of third-party vendors to alter loan terms. It also advises group members to require accurate and timely reports from vendors.
Credit unions that engage in subprime lending with third-party vendors should expect to be contacted by examiners from the NCUA.
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