By John San Filippo
At the recent CUNA Governmental Affairs Conference, Finopotamus spoke with Mark Chandler, vice president of business development for Credit Union Leasing of America (CULA). The company enables credit unions to provide auto leasing through a network of more than 4,000 dealers in states across the country, including Minnesota, Wisconsin, Illinois, Ohio, Pennsylvania, New York, New Jersey, Massachusetts, Colorado, Utah, Nevada, California, Texas and Florida.
An LOS Add-on
Chandler explained that CULA had to develop its own software platform to make up for the deficiencies in the traditional loan origination system (LOS). “We developed our proprietary information management exchange called Seamless Lease Connection,” he said.
“Seamless attaches to the LOS and it translates, for example, money factors into interest rates, cap cost into sale price, residual value into balloon amount,” he explained. He added that Seamless Lease Connection also tracks the taxes on each lease. “We don't expect our credit union partners to have to think about how much tax has been received and then submit it to the agencies.”
Chandler claimed that Seamless Lease Connection is integrated to seven major LOSes, adding that CULA has never been presented with an LOS to which it couldn’t integrate. He further stated that the CULA system also requires some integration to a credit union’s core processing platform. Core integration is easier, he offered, when the core has a leasing module, naming Symitar’s Episys as one such example.
Indirect Lending Lays the Foundation for Indirect Leasing
While an existing indirect lending program is not technically a prerequisite of an auto leasing program, Chandler said having such a program in place makes implementing a leasing program significantly easier.
“Indirect leasing is a better add-on to an indirect lending program,” said Chandler. “We've had some lenders in the past just do leasing, so it's not impossible, but it's better with an indirect program because you can capture more market that way.” According to Chandler, 30% of auto financing transactions use leasing. With both indirect lending and leasing programs, a credit union is assured of capturing the greatest possible market share.
Finopotamus then asked whether a member can walk into a credit union and request an auto lease just like they request an auto loan.
“Today the lease has to go through an indirect lending channel,” answered Chandler. “We have a couple of credit union partners that refer their members to their-in network dealerships, but you can't do a lease at a branch like you could do with an auto loan. Leasing is a point-of-sale product.”
He added that the chances of a credit union doing direct leasing are slim. “The credit union would have to become a broker because they have to do a DMV transaction,” said Chandler.
Making It Easy for the Dealers
According to Chandler, making it easy for the dealer to originate a credit union lease leads to more leases for the credit union.
“The experience is all about the dealership. It's very dealer centric,” he said.
“The way we like to position CULA at the dealership is they don't have to think outside the box. It's the same technology, the same hardware, same screens and keyboards, and those gigantic Volkswagen-sized dot-matrix printers that the dealer uses every day,” he quipped.
He continued, “All they have to do is grab a different lease agreement for each of our credit union partners. In fact, in some states, we have multiple credit union partners and it’s the same agreement. The printer just prints a different credit union name on the lease. We really embrace the dealer industry, because if the dealers aren't thinking about us, they're going to go to the captive or the national banks for leasing.” He said that CULA often does joint promotions with individual dealerships.
And even though there are plenty of member-facing online tools and services for buying a vehicle, Chandler said that a dealership normally needs to be involved at some point - if for nothing more than to provide the vehicle. He doesn’t foresee a time in the near future when dealers will be largely excluded from vehicle purchase transactions.
Better for Credit Unions and Members
“If the goal is to serve all your members and if there's 30% of members who are leasing and not buying, you need to offer leasing to reach those members,” said Chandler. “It's a chance to serve more members, get more members and be a full-service auto lender.
Whether credit unions can generate more revenue from leases compared to loans depends on the current rate environment, according to Chandler. “When the rates get a little higher, we'll show better yield over the loans,” he said. “Right now, I don't try to promote more yield to our credit unions with the rates this low, but when the rates were 0.2 percentage points higher, we were getting up to 60, 80 basis points more yield on these things.”
Chandler added that in the past, leasing got somewhat of a bad reputation with credit unions.
“There were some companies that had come into the marketplace that had really inflated residual values, so when the cars started coming back, the credit unions would take a big loss,” noted Chandler. “They went out of business, but it kind of hurt the credit union industry. We've been around since 1988, so we've navigated through all that. Credit unions come to CULA because they know they can trust our process.”