Credit Unions will now be able to follow up with applicants who were unable to procure loans, and see if they pursued credit at other institutions, thanks to a new service from Equifax.
The new Lost Sales Analysis tool is designed to show credit unions which borrowers received loans from other institutions, and how they performed. Although no personal or identifying information is said to be divulged, it is detailed enough for financial institutions to identify whether the loan in question should have been approved or if it was indeed a risk that they were wise to avoid.
While the product is ostensibly pitched as a way to give credit unions a deeper look at their lending business, the implication seems to be “look at all the loans you didn’t make that could have been profitable – no matter how dreadful the credit score or the terms of the loan.
“Although no personal or identifying information is said to be divulged”
Yeah, right…
So, basically what do they do with the information? “Oops, we made a mistake” or “See, I told you they were deadbeats” So what?
Smart move. In spite of the mouth breathing morons who crap their pants every time the word subprime is mentioned, it is a good business when done properly.
Credit Unions generally have a good reputation…much better than some 3rd party subprime providers.
If they start to see that you can finance people with 550-650 ish scores with decent income and employment history along with good debt to income ratios, these loans are good for earnings when done correctly.
Thanks for the clarification
Wasn’t clarifying anything to you by the way.
Some of the auto media/bloggers of the world can’t decide what is wrong with subprime lending…they are programmed to know it is wrong due to some unknown reason.
First it was: OMG, the OEM’s are ramping up production based on this MASSIVE INCREASE IN SUBPRIME LENDING!!!! WE ARE DOOMED!!!!
Then it was: OMG, these subprime lenders are taking ADVANTAGE of these people.
The simple fact is that auto subprime lending, when done correctly, is a healthy business. When I say ‘when done correctly’ I mean with the proper interest rates to account for the higher default rates. Some people freak out when default rates increase a bit…guess what? When you build in those losses properly in the interest rates you charge, the end profit is not impacted.
To try and explain why subprime mortgages went wrong in the 2000’s and helped wreck the global economy when there have been numerous intelligent pieces written and contrast that with auto subprime to people who either aren’t smart enough or aren’t willing to listen is an exercise in futility.
Okey dokey, then…
@Sunridge
Strawman. Nobody said it was bad business.
Hope this in the right place Derek…didn’t say you directly! Said this in general about people writing on subprime…you can’t deny what I wrote about is often implied in the pieces.
Understand that you are not (especially in this piece) making that assumption.
My father, who was a banker, always said that a car loan was the safest loan to make. The guy would starve his family, let the kids go barefoot, skip mortgage payments, whatever – but the car loan would be paid, so his wheels wouldn’t be at risk of repossession.
Around the same time, the bank he worked for figured out that the cost of registering the liens on cars was many times what they recovered from repossessions. Their response was to take the lien when the loan was made, but not to register it. Saved them a bunch of money, apparently.
This was a number of years ago, of course. But I wonder if anything has really changed.
Not registering the lien… cute, and it makes sense. While in theory a borrower could simply get a (lien-free) duplicate title from the DMV and then sell the car even with an outstanding loan, it’d be pretty stupid/dangerous to do so for the criminal, since there would be ironclad evidence a lien did, in fact, exist. Unless you plan on leaving the country and never coming back it’s a bad idea.
Who cars if they’re as big as a Subaru and cost as much – f***** finance them! And when you die, they can bury you in them!
you tube dot com/watch?v=mNzr6lfiHJE
At first bluSh, this product seems illegal. A prospective creditor can check your credit in connection with an application. A creditor which has lent you mean bey can do an account review, but I don’t know any provision of the Fair Credit Reporting Act that lets a lender who turned you down see how your loan with somebody else progressed. Aggregate data on a pool of denied applicants is probably Ok.
If this is an honest and not PC study, I’ll guess the answer will be “not well.”
Don’t we have a case study on this already, called the 2005-08 housing market?
For the banking/credit industry, that was most lucrative period in history. Up until now. Having the Government rob others on your behalf is lucrative as heck in dystopias like ours.
Equifax – they’re insurance investigators aren’t they? I know they intimidate for the insurance industry.
This would be valuable in identifying trends about why people default. People tend to look at a credit score as a final answer, but it takes more critical thinking than that. For instance, the housing crisis lead to a huge number of defaults and short sales that negatively impacted credit ratings, but if one has an otherwise clean credit report, their score may not accurately reflect their true risk. As a landlord, I look beyond the immediate score to identify people who have played it safe with car loans, credit cards, other bills, and only have a SS/foreclosure on their record because those people tend to be ideal renters. A similar analysis might be done with medical bankruptcies, or divorces. These are traumatic events that often hugely impact credit scores, but again might not accurately reflect risk of default on a car loan.
S2K Chris, credit scores can be deceiving. Discover Card tells me I have a FICO of 823, yet I have no debts, just two personal credit cards which are rarely used, and haven’t financed a car since that 1988 Silverado I bought new.
As to why people default on loans? They don’t have enough money to go around would be my guess. I have known people with terminal illnesses of a family member to default on loans, but America has bankruptcy laws for those who truly need protection.
Not sure what the point of your first paragraph is, aside from the old humblebrag. Yes, with limited credit utilization, and presumably a pattern of paying off debts, you would expect a high credit score. That’s not news.
As to the second paragraph, that’s my point, not all defaults are the same. Sometimes it’s over reach on credit (running out of money) but sometimes it’s due to specifically targeted actions that should not necessarily have an impact on other areas. Like I mentioned, a lot of people short-sold houses in the last 5 or so years, that impacts their credit. It will prevent them from getting a mortgage, which I don’t have a problem with, but should it also prevent them from getting a car loan or credit card? I’m guessing that studying the default rates for this pool on non-mortgage debt will show that they are a good credit risk for non-mortgage debt, even though they may have a subprime credit score.
I know how the b&b feel about credit (especially sub-prime) and that its good business sense to to write in a way that the readership will find favorable. However, if the b&b are right, what this scheme will actually do is tell credit lenders “look at how good your loan officers are and how much money they saved you.” Credit unions are already tighter with their money because they serve their customers instead of themselves. If these people really are ticking time bombs then that’s what the data will show, and if they’re not then maybe it means the way credit scores are calculated are slightly askew. The one thing I dont see happening, though, is for credit unions to take any more undo risks that they already do. My car loan with a greater than 750 credit score is with a credit union that made sure every t was crossed and every i dotted. And, again, it’s because they serve their customers (me included) above any other interest. Maybe a big bank or manufacturers lending arm may make bad deals with that kind of data, but credit unions will need proof that the info they get passed in this manner actually means something.