SEPTEMBER 2014 NUMBER 9 WWW.NCUA.GOV
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2 Chairman’s Corner
Credit Unions Help
Students Go Back
4 Want to Reduce Risk at
Your Credit Union? Start
with Internal Controls
6 School Partnerships
Can Benefit Students
and Credit Unions
7 Be Prepared: Develop
a Strong Business
8 Loans Grow in All
10 Mc Watters Takes Oath,
Joins NCUA Board
Office of Examination and Insurance Report
BEWARE OF THE DANGERS OF INDIRECT
August and September are normally the start
of the new model year for automakers,
which means more Americans will consider
purchasing a new automobile.
The Wall Street Journal reported the U.S.
automobile market had recovered in
January after five years of rising fuel prices
and financial market turmoil. Sales for
2013 hit the record levels set in 2007, and
the Journal reported automobile sales
continue to gain steam in 2014.
The recent rise in automobile sales has led to
an increase in indirect automobile lending
for credit unions. Across all federally insured
credit unions, indirect lending increased more
than 10 percent in 2012, more than 18 percent
in 2013, and more than 21 percent since June
of last year. Auto loans comprise a majority
of all indirect lending by credit unions.
Because of this increase, examiners are now
finding many credit unions have reached their
concentration limits on indirect auto loans, as
specified by their own credit union policies.
Indirect automobile lending has long been a
consistent way for a credit union to add
loans to its balance sheet. However, as Letter
to Credit Unions, 10-CU-15 “Indirect
Lending and Appropriate Due Diligence”
notes, “while there are benefits to a well-run
indirect lending program, an improperly
managed or loosely controlled program can
quickly lead to unintended risk exposure.”
The letter also includes warning signs
examiners should look for when reviewing
an indirect lending program at a credit
union. These red flags include:
n A high concentration of indirect loans to
total loans or net worth without adequate
controls in place.
n Incentive programs tying loan officer
bonuses to indirect loan volume.
n Inadequate analysis of overall indirect
loan portfolio performance.
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