How & Why Credit Unions Are Outpacing the Market With Vehicle Leasing

on 2:28 PM

 Of all the change and uncertainty we’ve been through as an industry, one thing has held true throughout: It’s all about the payment. Sounds simple, right? And maybe even a bit obvious. After all, many people are no longer as interested in owning as they used to be. Renting and subscribing are more the order of the day. According to the Global Banking and Finance Review, 70% of business leaders say subscription business models will be key to their prospects in the coming years. According to Zion Market Research, the subscription and billing management market was valued at $3.8 billion in 2018 – and is expected to reach $10.5 billion by 2025. And while we can all agree on the importance of “the payment,” this desire is actively changing consumer financing preferences in surprising ways, while limiting their options. Market forces are putting pressure on buyers. Prices are too high – and inventories still so low.

Supply chain issues forming in 2020 and 2021 have caused OEMs and captive finance companies to actively pull back and in many cases eliminate incentives.


And, it’s not just rebates. Low interest rates and subverted residual values are scarce as well. And it makes perfect sense: Why would captive financial institutions offer incentives when the vehicles that dealers have are selling fast – and at full retail? They don’t need incentives.

Here’s a pretty typical captive finance scenario playing out on dealership lots: A customer coming to the end of his/her lease gets to choose between another lease for a similar vehicle – and hundreds more per month – or a 72-month loan for an even higher monthly payment. Excluding some cars, leasing for 39 months compared to a loan for six years can still be approximately $100 less per month. But that’s the best of two bad captive choices, and a scenario that leaves the dealer without any good options.

The result is sticker shock and a rethinking of options. Consider, for example, that pre-pandemic leasing was almost 30% of the new car market. In some states, it was over 60%. According to the most recent Experian Automotive Report, in Q2 of 2022, overall vehicle lease penetration dropped to just under 20%. All of which makes it appear as though leasing is unattractive and costly.

Blame the pandemic. Or, more accurately, blame the inventory shortages that were at least partially caused by the pandemic. The point is that captive finance companies aren’t pushing leasing as much as they did before because natural demand is stronger. As a result, this important payment option for consumers seems to have vanished.

But dig a little deeper, beyond the captives, and you can find gold.

Credit unions that participate in leasing are up nearly 50% because affordable leasing gives shoppers the power of more payment flexibility, while also keeping their vehicle under warranty. It’s an opportunity born from the alignment between high interest rates, the absence of incentives, and the high price of vehicles – an opportunity your members (and all consumers) have noticed. At nearly 26%, credit unions are experiencing their highest overall share of the auto finance market in five years – a percent of share that’s just 2% below banks.

Here’s a real-world example: According to John Hendricks, senior vice president of lending at the $979 million St. Mary’s Credit Union in Marlborough, Mass., they were not only able to provide members with a car buying alternative, but also effectively grow an auto portfolio at a rate they hadn’t seen in some time. Hendricks said: “With the price of cars continuing to increase, leasing is becoming more prevalent and is now a necessary tool for credit unions to remain competitive in the indirect space.”

It’s true that captives will always lead new vehicle financing, but credit unions are making important headway: Credit union leasing is proving to be a strong antidote for the inflation flu. It also serves as a balancing force that counters the heavy volume of indirect used vehicle business. It’s not uncommon to hear about a credit union that enjoys a record-breaking month in its indirect financing, only to learn that it’s 75% used. Leasing, as a predominately new vehicle option, helps to balance the plethora of used vehicle financing with the best kind of customer: One that learns to appreciate the local nature of customer service excellence of credit unions and has a reason to come back for their next loan … every three years.

In a volatile rate environment, with economic pressures weighing down on members, leasing is a short term, low risk, strong yield option that gives members more payment flexibility and credit unions returning business. That might seem simple – but it also sounds like a very successful strategy.

--Mark Chandler is Vice President, Business Development for CULA in San Diego.

Credit Union Loan Balances Soar Again

on 10:29 AM

 Credit unions continued their pattern of strong loan growth in September, but CUNA Chief Economist Mike Schenk said Monday the growth will fade as the Fed continues raising interest rates.

“That strong loan growth will be tapering off as we go forward,” Schenk said.

CUNA’s Monthly Credit Union Estimates released Friday showed credit unions made big gains in all major areas except first mortgages. Total loan balances grew 19.6% to $1.5 trillion from a year earlier, and rose 2.1% from the previous month, compared with an average September gain of 0.9%.

Schenk said the report showed the same strong gains in loan balances from previous months this year.

The 2.1% gain from August to September marked the third month in a row with monthly gains exceeding 2%.

“Looking back over 30 years, there has never been a calendar year where we’ve had three months of loan growth that fast. It’s pretty incredible,” Schenk said.

Auto loans remain one of the leading growth areas.

New car loans grew 22.7% to $176.6 billion from a year earlier, and rose 3% from the previous month, compared with an average September gain of 1%.

Used car loans grew 19% to $309.9 billion from a year earlier, and rose 2.1% from the previous month, compared with an average September gain of 0.8%.

The Fed G-19 Consumer Credit Report released Monday showed credit unions increased their share of the nation’s total balance of motor vehicle loans. Credit unions had a record 34.8% share as of Sept. 30, up from 33.3% in June and 31.1% in September 2021.

Credit unions’ share was only about 25% in 2015. It rose to a high of 32.6% by the end of 2018 and fell to a low of 30.1% in June 2021 before setting new records in June and September this year.

The G-19 also showed credit unions increased their share of credit card debt.

Credit unions held $70.3 billion in credit card balances as of Sept. 30, up 14% from a year earlier, and up 0.7% from August, compared with an average September gain of 0.3%.

Credit unions’ share was 6.3% in September, compared with 6.2% in August and 6.3% in September 2021.

Banks held $1.02 trillion in credit card debt on Sept. 30, up 16.8% from a year earlier and up 0.4% from August. Banks’ share was 91.0% in September, unchanged from August and up from 90.2% in September 2021.

However, real estate is suffering.

The Mortgage Bankers Association estimated that third-quarter originations of first mortgages were $480 billion, down 55% from a year earlier. It forecast fourth-quarter originations will fall 59% to $410 billion.

Among the Top 10 credit unions by assets, residential real estate loan originations were $11.8 billion in the third quarter, down 33% from $17.6 billion a year earlier and down from $15.4 billion in the second quarter.

On the balance sheet, CUNA estimated that all credit unions held $549.4 billion in first-mortgages, down 2% from a year earlier, and up 1% from the previous month, compared with an average September gain of 1.1%.

Second-lien mortgages grew 17.8% to $100.3 billion from a year earlier, and rose 3.6% from the previous month, compared with an average September gain of 0.2%.

While loans have been growing quickly, savings have lagged. Savings were $1.9 billion on Sept. 30, up 6.6% from a year earlier, and up 0.7% from the previous month.

“And what all of that means is the loan-to-share ratio is rising and has been rising pretty strongly,” Schenk said.

The loan-to-share ratio was 79.0% on Sept. 30, up from 77.9% a month earlier and 70.4% in September 2021.

“That compares to a pre-pandemic reading of 71%, which is pretty close to the long-term average of 73%,” Schenk said. “What that means is there’s not a lot of liquidity, or liquidity has been tightening very significantly over the course of the year and it certainly did in the month of September.”

Schenk pointed to loan quality and membership growth as two of the brighter trends seen in its September report.

Credit unions had 136.1 million members on Sept. 30, up 3.8% from a year earlier, which Schenk said was “incredible” compared with annual U.S. population growth of about 0.5%.

The 60-days-plus delinquency rate was 0.49% on Sept. 30, up from an all-time low of 0.42% on March 31 and running at about half the long-term average delinquency rate of 0.96%.

“Delinquency held steady near all-time lows,” Schenk said.

PSCU Finds Energy Fueling Member Spending

on 9:05 AM

 Credit union members continued to increase their spending in September with rising prices, especially for energy, being a major factor, according to a PSCU report Tuesday.

PSCU, a payments CUSO based in St. Petersburg, Fla., showed overall dollars spent on credit cards in September was 13% higher than in September 2021, while the number of transactions rose 11%. Debit spending rose 6%, while transactions rose 3%.

But the PSCU Payments Index found the disparity between dollars and transactions was especially high for energy: From gasoline to utilities.

“The U.S. economy continues to face persistently high inflation, a looming recession and rising energy prices. Yet consumer purchasing activity showed continued resilience in both credit card and debit card volume in September,” the report said.

Spending for gasoline rose 26% by credit card — twice as fast as the 13% increase in transactions. By debit, spending rose 13% while transactions rose 3%.

For electricity, natural gas and water, spending rose 26% while transactions grew 12%. By debit, spending rose 14% while transactions grew 5%.

Among credit union members receiving their first deliveries of fuel oil or propane in September — typically in the north— spending for those home heating fuels rose by 50%, while transactions rose 25%. By debit, spending rose 45%, while transactions rose 14%.

The U.S. Census Bureau reported Oct. 14 that retail spending, excluding automobiles and parts, rose 9.4% in September from a year earlier.

Census found grocery store spending rose 7% in September from a year earlier, Census reported. At PSCU, spending rose 17% by credit and rose 7% by debit.

Spending at restaurants and bars rose 13% in July from a year earlier, Census reported. At PSCU, spending rose 21% by credit and rose 7% by debit.

The average credit card balance was $2,797 per active account handled by PSCU in September, up 6.1% (or $160) from a year earlier.

“Credit card balances surpassed the September 2020 results of $2,787 for the first time since the decline in card balances that began in early 2020. The credit card delinquency rate for September was 1.74%, 16 basis points lower than pre-pandemic September 2019 levels,” the report said.

The Fed’s G-19 Consumer Credit Report released Oct. 7 showed credit card balances grew 13.3% to $69.8 billion in August from a year ago, and rose 1.2% from the previous month, compared with an average July-to-August gain of 1% from August 2015 through August 2021.

The PSCU Payments Index was based on data from credit unions that have been processing payments with PSCU since January 2020. It encompassed 2.9 billion transactions valued at $144 billion of credit and debit card activity in the 12 months ending Sept. 30.

World Council to Host Free "EMPOWER" Webinar on ICU Day

on 1:28 PM


The theme for International Credit Union Day 2022 is "Empower Your Financial Future with a Credit Union." To celebrate ICU Day on Thursday, October 20th, World Council of Credit Unions is hosting a virtual event featuring panelists from credit unions around the world who will discuss different ways they have empowered the financial futures of their members and employees (click the link to register for the webinar).

Participants will hear stories of empowerment from Ireland, Ukraine, and Peru—along with a description of how Worldwide Foundation for Credit Unions is joining forces with True Sky Credit Union from the United States to raise US $500,000 as part of its “EMPOWER” campaign to further credit union member empowerment moving forward.

This webinar will feature the following panelists:

  • Mike Reuter, Executive Director, Worldwide Foundation for Credit Unions
  • Sean Cahill, CEO, TrueSky Credit Union (United States)
  • Billy Doyle, CEO, Dundalk Credit Union (Ireland)
  • Viacheslav Vitiuk, CEO, Credit Union PVKS (Ukraine)
  • Hector Farro, Deputy Manager, FINANSOL (Peru)
  • Pedro Pablo Martinez, Commercial Advisor, FINANSOL (Peru)

The webinar will include translation in the Spanish and Ukrainian languages. If you have questions about the webinar, contact Greg Neumann, World Council Director of Communications, at or +1 608-395-2048.

Credit unions gain larger share of auto loans as banks lose momentum

on 11:47 AM

 A surge in auto lending in the second quarter has given U.S. credit unions their biggest slice of the vehicle lending pie in the past five years. 

Recent data from the National Credit Union Administration showed that auto loans increased $58.7 billion, or 15.1% year over year, to $447.6 billion. Used-auto loans rose $43.2 billion, or 17.4%, to $291.0 billion, and new-auto loans rose $15.5 billion, or 11.0%, to $156.5 billion.

Experian’s State of the Automotive Finance Market report for the second quarter of 2022 shows that credit unions now have their highest total share of the auto lending market since 2017, at nearly 26%. A year ago that figure was just above 18%.

The secret to their success is offering low rates and underpricing the market, said John Toohig, head of whole loan trading at Raymond James.

“We’re in this really weird spot right now where [credit unions] have a lot of cash on hand and they’ve been using it to make loans at ultra-low rates,” Toohig said. “We’re still seeing them make 1%, 2% or 3% auto loans whereas the rest of the market is at 5.5% or 6.5%.”

For Pathways Financial in Columbus, the average auto loan has risen $2,775 year over year, which represents an 11.7% increase in average loans outstanding.

And that increase in auto lending may be coming at the expense of banks. Growth in lending to consumers buying cars and trucks decelerated to half the pace of the prior three months for U.S. banks in the second quarter.

Experian said banks’ share of the market fell from 30.3% a year ago to 27.9% in 2022. The remainder of the market is owned by the auto companies themselves, as well as fintechs.

One of the credit unions seeing increased auto loan demand is Truliant Federal Credit Union, a $4 billion-asset lender in Winston-Salem, North Carolina. Truliant had $1.1 billion in auto loans at the end of the second quarter, up from roughly $1 billion at the same point last year, plus another $620 million in indirect auto loans. 

Chris Murray, Truliant’s chief member experience officer, said auto loan demand has been strong, particularly through the indirect lending channel, which are made through a dealership rather than through the lender’s direct channels. 

“And we expect it to remain strong,” Murray said. “We are leveraging our strength in indirect [lending] and making investments in technology, processes and people in order to scale up our capabilities to generate more loans through the channel.” 

Most of the new business has been in used-auto loans, and Murray said funding loans fast is crucial when dealing with independent used-car dealerships. 

“They rely on our fast funding, especially in today’s market where they have to compete heavily to get inventory at auction. Cash is king for them; the faster they get funded, the faster they can get the next car on the lot to sell,” Murray said. 

And volumes have not slowed despite Truliant steadily raising rates. 

Other credit unions will have to pump the brakes on auto lending soon, asin some cases they have nearly a negative net interest margin on auto loans, Toohig said. “They’re going to have to raise their rates first just to slow down lending but also to take a look at the profitability of the portfolio,” he said.

Curtis Onofri, chief lending officer at Pathways Financial Credit Union, a $592 million-asset lender in Columbus, Ohio, said auto-lending growth has been fueled both by new purchases and refinancing.

There are several factors at work causing the rapid growth in auto lending — including increased prices, strong marketing, trailing rate increases and better inventory, Onofri said. 

“Prices in the new and used market have increased considerably over the past couple of years. This increase is translating into larger average loan amounts,” he said.

For Pathways, the average auto loan has risen $2,775 year over year, which represents an 11.7% increase in average loans outstanding.

Hanscom Federal Credit Union, a $1.9 billion-asset lender in Massachusetts, had $350 million in auto loans at the end of the second quarter plus another $231 million in indirect auto loans. 

Dan Picard, Hanscom’s senior vice president of consumer lending and collections, said that with the lack of incentives at automobile dealerships due to limited inventory, auto manufacturers’ financing arms are not offering appealing financing options. 

“As a result, the lending opportunities for credit unions has continued to be steady even in this rising rate environment,” he said. 

Toohig said those loans are also driving up credit union membership, but the question is whether the credit unions can then cross-sell those consumers on other products like credit cards or mortgages. 

It’s easier said than done, Toohig said. “Historically, that number [of cross-sales] is incredibly low.”