Automation Transforms Credit Union’s Lending Program | Credit Union Journal


American Credit Union’s decision to automate its direct lending system paid off dramatically – the lender grew from $1.97 million in net income in 2020 to $7.3 million in 2021, and attributes the growth to this change in technology and the removal of an indirect auto loan program.

DuPont, Wash., Credit Union replaced a manual decision-making process with technology from CuneXus, a subsidiary of CUNA Mutual. The old system resulted in poor loan quality, low loan approval rates, high delinquencies, and low loan portfolio growth.

In 2019, before introducing the CuneXus platform, ACU had $450 million in indirect auto loans and $5 million in charges.

“Indirect Loans added new members, but they only used us for their auto loans,” said Troy Kyle, ACU’s executive vice president and chief information officer. “So we decided to focus on our existing members and stop selling car loans indirectly.”

ACU’s automated lending platform offers pre-approved auto loans, which were previously distributed through car dealerships and experienced high levels of chargebacks, as well as pre-approved personal loans and credit cards. approved. Eventually, ACU plans to automate all of its lending products, including its buy now/pay later offering.

Since ACU is a designated low-income credit union, they wanted to find a way to ensure that low-income members applying for credit cards and car or personal loans were not turned down.

“What had happened was that low-income consumers were opening accounts and filling out loan forms, but then being turned down,” Kyle said.

Troy Kyle (left), chief information officer at America’s Credit Union, and Barry Kirby, senior vice president at CuneXus. After implementing CuneXus’ technology, “our net income in 2021 was the highest ever at $7.3 million and we saw 520% ​​year-over-year loan growth. “said Kyle.

In 2021, the ACU, which has 38,000 members and assets of $672 million, implemented the system from CuneXus, a Santa Rosa, Calif.-based digital technology provider, to 215 U.S. financial institutions. The ACU primarily serves members of the United States military, who make up about two-thirds of its membership. Residents of the Pacific Northwest can also join the credit union.

The ACU faces competition from large military credit unions such as the Navy Federal Credit Union as well as fintech lenders such as SoFi.

“Using CuneXus helps us prevent large military credit unions from stealing from our military,” Kyle said. “It also allows us to expand our non-military member base and prevents members from defecting to fintechs and big banks.”

Fintech lenders have increased competition with traditional bank and credit union lenders by digitizing consumer loan origination processes, Craig Focardi, principal retail banking analyst at Celent, wrote in a report published in April. march. Processes that have been digitized include loan research, loan application, credit scoring, automated decision making and signatures.

Before the ACU implemented CuneXus, its loan underwriter decision-making process was manual and inaccurate, and sometimes resulted in missed opportunities with members who might qualify for a different loan better suited to their needs, Focardi wrote in his report.

ACU has completely eliminated the loan research, application and underwriting process, instead offering a broad menu of pre-approved retail loans. Thanks to this strategy, “the origination volume of high-quality loans has exploded,” Focardi wrote.

Like other financial institutions, the ACU has seen its members move from branches to digital banking.

“Only 8% of our members’ transactions involve our branches,” Kyle said. “The majority of our members’ transactions are done online, with the rest going through the call center. »

The CuneXus Loan Automation Platform, which went live in June 2021, enables ACU to make pre-approved loan offers with personalized interest rates. It allows ACU to set up a digital storefront for pre-approved loans for individual members online, in person and over the phone.

“Our lending engine takes all the data the ACU has on its members and combines that information with pre-screened credit file data from the credit bureaus,” said Barry Kirby, senior vice president at CuneXus. “We also host all of ACU’s loan products as well as underwriting decision criteria and rate sheets. Members simply click on the loan products they wish to activate. We eliminate the entire credit application process and approval is done in seconds. »

The move to the CuneXus platform and the end of indirect lending led to a marked improvement in lending performance and net income in 2021, Kyle said. ACU’s provision for loan and lease losses fell to $6.08 million from $6.67 million in 2020, while net write-offs fell to $402,416 from $2.39 million in 2020.

“Our net income in 2021 was the highest ever at $7.3 million and we saw 520% ​​year-over-year loan growth,” Kyle said. ACU’s loan loss provisions fell from $3 million in 2020 to less than $182,000 in 2021, while its non-performing loans fell from $3.22 million to $1.4 million during the same period.

By selling auto loan “gap” insurance and warranty products to people getting auto loans directly from the credit union, ACU was able to generate $1.3 million in non-profit revenue growth. interest in 2021.

“80% of customers who take out auto loans buy our auto loan gap and mechanical breakdown insurance products for auto loans,” Kyle said. “Previously, we were seeing a 30% penetration rate.”

Low-income borrowers especially benefit from ACU’s automated loan approval system, Kyle said.

“When we processed loan applications from low-income borrowers through our traditional channels, the criteria were too strict,” Kyle said. “We didn’t consider data such as members’ history with us or their utility bill payments and the payments they made to merchants. We fed all of this data into an algorithm, which we run when members apply for loans through CuneXus. As they are pre-approved, members do not have the negative experience of being turned down for loans”

ACU’s retail channel employees also benefit from automation, Kyle said. “Our employees don’t have to do a lot of product sales and can just show the member what they are qualified to do.”

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