HOLLYWOOD, Fla. — A CUNA Mutual Group pilot project found thatcredit unions that call indirect borrowers to offer other servicesand build relationships can reap promising results.

In an effort to help credit unions turn indirect borrowers intolong-term, profitable members, a CUNA Mutual Group pilot projectyielded promising results and several important findings from whichcredit unions can build strategies, according to a recentlypublished white paper.

Results of a four-month pilot and a white paper were presentedat CUNA Mutual's Discovery Conference last week. “DevelopingMembers from Indirect Borrowers: Lessons Learned” provides detailson how 13 credit unions went about building multi-productrelationships with indirect borrowers through a dedicated callcenter.

Indirect auto lending has long represented both an opportunityand a problem for credit unions. While it has been a source ofmembership growth in recent years, the members who join creditunions via indirect channels usually are reluctant to purchaseadditional products. They are overwhelmed by the car purchase andthe monthly payments, the CUNA Mutual white paper said. “Thethought of a checking account or credit card is the last thing ontheir minds. In some cases, they are unaware that they just joineda credit union.” Many of these new members become “one and done”members who are rarely heard from again.

“By investing resources to help credit unions deepenrelationships with indirect borrowers, CUNA Mutual sought toaddress one of the industry's biggest lending challenges,” saidHeather Thiltgen, CUNA Mutual vice president of consumer programs.“The pilot identified ways credit unions could engage indirectborrowers by introducing other credit-related products to meettheir needs and save them money.”

The most successful product offered to indirect borrowers in thepilot was a line of credit, which had a 28% sales rate. Creditcards netted a 17% sales rate, and auto refinances had a 15% rate.The average line of credit was $2,098; credit cards $5,005 and autoloan refinance $16,140. In cases of auto refinances, the calloperators also cross sold credit insurance. And this part of thepilot achieved a 30% cross-sale rate.

One key finding from the pilot was that the indirectborrowers-members welcomed phone calls from their credit union,according to CUNA Mutual. Outbound call representatives receivedpositive responses from members when they identified themselves asrepresentatives of the credit union. In addition, the studyconcluded that the new members viewed the calls as a personaltouch.

Amplify Credit Union, one of the pilot's early adopters, derives50% of its new membership through indirect borrowers. The Austin,Texas-based $465 million credit union has 42,000 members.

“The pilot was very well done in that CUNA Mutual devoted properresources, time and energy that delivered a program from which wecould all benefit,” said Pierre Cardenas, Amplify's senior vicepresident for retail. “The most interesting outcome for us was thatcall center personnel, who weren't our employees, were just aseffective as our employees. Our members responded very positively,which indicates outsourcing this in the future might be worthconsidering.”

The CUNA Mutual white paper said that as the economy weakens,credit unions need a reality check concerning indirect lending.“Credit unions have unrealistic expectations of turning indirectmembers into profitable members at the time of vehicle purchase. Itis often a matter of bad timing since the member is preoccupiedwith obtaining a vehicle and doesn't want to be bothered withdecisions about additional products,” the report said.

In deepening relationships with indirect borrowers, Thiltgenrecommended that credit unions implement some of the best practicesCUNA Mutual incorporated into the pilot. These include dedicatingresources to make the program successful; verifying regulatorycompliance surrounding use of credit data; obtaining necessarytechnology and systems support; and pricing for therelationship.

“The pilot produced some interesting results on what appealed toindirect borrowers, such as, the success of an auto loan closingwas best when the member saved at least $20 a month,” saidThiltgen. “Also, those with higher credit scores were least likelyto accept card offers, and line of credit offers were the mostsuccessful, which might be related to the sense of security itcreates just in case something happens.”

“Above all, the pilot validated that our outbound-callingstrategy to rein in these new members was on the right track,”added Cardenas. “This proactive approach to onboarding indirectborrowers is the wave of the future. Credit unions can't afford notto engage these members, or any other new members coming from otherchannels for that matter.”

Indirect Borrower's Pilot Project

The CUNA Mutual Group pilot project was designed to identify thenext best credit union products to cross-sell to new indirectborrowers; help credit unions deepen relationships with newindirect members; execute additional product sales on behalf ofcredit unions using specially trained call center representatives;and increase credit union loan balances and noninterest income.

The project began with due diligence in April 2007, followed byresearch to design the pilot. The first credit union partner,Amplify Federal Credit Union of Austin, Texas, joined in October2007.

CUNA Mutual conducted additional research to identify bestpractices with credit unions and the financial services industryfor enhancing relationships with indirect borrowers. The researchindicated those practices that enhanced relationships with indirectborrowers included outbound calling, calls linked to recentautomobile purchases, and mining of indirect borrower informationto identify the next best product to sell.

The outbound phone representative called and welcomed the memberto the credit union, verified information about the indirect loanand cross-sold the appropriate credit union product–an autorefinance on another auto in the household, a credit card, or aline of credit. Payment protection was cross-sold on auto refinanceopportunities. Separately, MEMBERS auto and accidental death anddismemberment insurance offers were sent via direct mail to membersof select credit unions. The insurance offers thanked the memberfor their business, welcomed them to the credit union, and thenpositioned the insurance offer as another benefit of belonging tothe credit union.

The 13 pilot credit unions were chosen on the basis of assetsize, indirect lending program volume, and lending philosophy.

While the CUNA Mutual pilot found that members welcome phonecalls from their credit union, it also found that the phone callhad a relationship-building effect, even if the initial call didn'tat first deepen the relationship. The recorded phone callsindicated that members welcomed the calls even when they were notinterested in any additional product. They were happy to hear fromtheir credit union.

The participating credit unions reported that a pre-screeningprocess to be another benefit of the pilot program. The creditunion is able to obtain a member profile with the valuableintelligence–debt-to-income, credit cards, home equity loans,mortgages–that enabled the representative to match products to aparticular member. It also gives the credit union the ability todevelop marketing packages that are targeted to member groups. Andit provides the organization the ability to develop moresophisticated marketing campaigns needed in a competitive financialservices environment.

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