How Some Are Stemming The Tide Of Auto Loans Gone Bust

Credit Union Journal  |  Friday, April 4, 2008

By Steve Santiago

IRVING, Texas - Despite the fact that credit unions held a relatively small percentage of all repossessed auto loans, 0.1% according to CUDL, some credit unions are looking at various ways to stem a steadily rising tide of delinquencies brought on by the credit and mortgage crises.

One such option is WALKAWAY Protection, a vehicle return program that allows members to walk away from their vehicle lease or loan in the event of life-changing circumstances and protect their credit rating at the same time, according to WALKAWAY.

WALKAWAY provides members with protection against negative equity (up to $15,000), allowing them to walk away for their vehicle loan or lease in the event of four specific life-changing events and if the depreciated value of the vehicle is worth less than the balance due on the loan.

“The program is really a twelve-month vehicle return waiver,” said Jeff Beaver, senior vice president of marketing and product management for EFG Companies. “It’s not true debt cancellation, it’s a waiver that provides the member an opportunity to get out of their loan or lease if they had a handful of involuntary circumstances.”

The member must have experienced involuntary unemployment, loss of driver’s license due to medical impairment, international employment transfer or self-employed personal bankruptcy.

Beaver said that for the credit union, WALKAWAY is really a market differentiator in that it gives the member a reason to come back to that credit union when they are ready and able to purchase another vehicle.

“It’s an additional member benefit that can be provided to the member to drive loan volumes or to secure finance control because many times you’re competing with the dealer or a bank for the lending opportunity,” Beaver said.

San Antonio, Texas-based Air Force Federal Credit Union is one of the first credit unions in the country to start marketing WALKAWAY to its more than 42,000 members–many of whom are active duty military.

“For us, that was a great selling point because we have members that ship out all the time,” said Kathy Johnson, vice president of lending at the $315-million credit union.

Johnson says that she likes the fact that WALKAWAY is a much more cost-effective product to offer than GAP protection.

Air Force FCU offers 12 months of complimentary WALKAWAY with every vehicle loan it makes.

“WALKAWAY covers them up to $5,000 just on the complimentary which costs our members nothing,” Johnson said. “It’s just a cool product and it’s new to the area.” (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com

* Reprinted with permission, Credit Union Journal, 2008.