DETROIT—One Detroit CU is cutting auto loan rates in half for members with low FICO scores, and in the process is picking up some of its most dependable borrowers.
Over the last 18 months One Detroit’s Refi My Ride program has added $7.5 million in loans from subprime borrowers whose delinquency rate (.8%) is half that of higher FICO score members (1.62%) whose loans fall outside the refi portfolio.
The average rate in the portfolio is 6.49%, the average rate refinanced is 14.17%, and the average FICO score is 590.
CEO Hank Hubbard said the program began as an experiment—to use grant money to assist residents in low-income communities and not lose too much money in the process.
“It’s really worked out very well for our members and the credit union,” explained Hubbard, who said the program is open to all consumers who want to refinance their auto loan. He pointed out, however, that borrowers that come to the community development credit union with a low loan rate don’t always get their rate cut in half. One Detroit will go as low as 2%, with all rates based on a person’s credit. Borrowers, too, can have their rate chopped by far more than 50%—as was the case with one member with strong credit who was paying 23% on his loan, which was refinanced at 3%.
Hank Hubbard
Singing CU's Praises
“Members are literally singing the praises of the program” said Hubbard, who added that $34-million One Detroit believes the refi offer can be “life changing” for many. “One member came in this year and asked to close out her relationship so she could get her $10 share deposit back to buy groceries for her kids.”
Hubbard said a savvy teller asked if the member had a car loan outside the credit union.
“Turns out she did, and it was at a very high rate, which is not unusual for borrowers in this part of the city,” said Hubbard, who noted that Michigan allows auto loan rates as high as 25%.
The member had her high-interest loan refinanced and now pockets another $60 a month to pay for necessities.
“She was singing gospel songs and praising everyone in the credit union when we closed that loan,” said Hubbard.
Hubbard said it is not uncommon for borrowers to stop in with an auto loan above 20% and ask for help.
“In our current Refi My Ride Portfolio we have 43 loans from consumers who previously had rates of 23% and higher,” said Hubbard.
Just A Test--At First
Refi My Ride was started in in 2012 and was first called the Auto Bailout Loan—a name tied to the automaker bailouts that occurred during the recession. One Detroit had received a $2.5-million grant from the Community Development Financial Institution Fund that is used to fund the new program’s loans.
“We were just trying something,” said Hubbard. “It was a test. When loaned out the $2.5 million, and then we stopped the program. We waited to see if we would lose a lot of money. But we never did.”
That good track record led One Detroit to bring the program back in 2013, loan out $2 million in non-grant money, and then see how borrowers repaid.
“Our default rate has always been lower than the rest of our auto loan portfolio,” said Hubbard.
In 2015 the program was set in place for good, said Hubbard.
“It’s become one of our key products,” he said. “I think members repay us because they now have more money to spend each month, they are very thankful, and they have proven they can handle the loan since they were already making larger payments.”
One Detroit's Schannon Love pumping gas
Hubbard said the credit union won’t make the loan to individuals whose credit report shows they have been late on any of their previous car loan payments. If the person comes in with a new loan that virtually no payment history, the credit union will closely examine the person’s credit.
“These members who often get their rates cut in half are used to making bigger payments, so that is one big reason we feel they are very good borrowers,” said Hubbard.
To bring more attention to Refi My Ride, and give back to the community, One Detroit recently gave away $10,000 worth of free gas at a local BP station. http://www.cutoday.info/Fresh-Today/CU-s-Free-Gas-Giveaway-And-Refi-Offer-Has-Cars-Lined-Up Each driver received $20 in fuel.
“Refi My Ride is a lot of fun—fun to see how we can improve the lives of those who live in our communities,” said Hubbard, who was at the gas station handing out cash. “Consumers with high rates often just pay attention to the monthly payment. We wanted the giveaway to bring some more attention to our offer and to how people can get out from under higher, predatory auto loans. And we think we did that.”
Happy Members
Hubbard said staff enjoy seeing happy members walking out of the credit union with more money in their pockets each month. Borrowers in the current $7.6-million portfolio will each save on average $720 a year, and collectively, $1.5 million over the life of their loans.
Hubbard said not only is that money doing good for members, but for the community as well.
“That is $1.5 million that previously was not going back into our neighborhoods,” said Hubbard. “We get big banks that announce they will invest $1.5 million in the neighborhood, but they are really just lending the money and are getting it back. The savings from Refi My Ride is real money in people’s pockets, no strings attached, just money they are putting back into our local economy through grocery stores, gas stations and other businesses.”