MEDLEY, Fla. — With almost no public transportation in its service area, Compass Financial FCU realized it needed to do more than just give its members an auto loan. The CU also needed to help members keep their cars on the road.
Leonardo Acosta, president and CEO of $23 million Compass Financial FCU, told Credit Union Journal the solution was a partnership with IWS, a provider of vehicle service agreements and mechanical breakdown insurance to credit unions. IWS is headquartered in Boca Raton, Fla., and has an office in Itasca, Ill.
"In Dade County there is not great transportation, so having a vehicle is essential to a working-class family," Acosta said. "We put the program in place approximately three years ago. Our members needed assistance because if their vehicle is not working that puts them in a very bad financial situation. The local dealers recognize the IWS name, and we also provide members with great discounts on warranties. This gives people great peace of mind."
Compass Financial EVP George Jorge said oftentimes members can afford their loan payments, and they can afford the insurance, "but if there is a mechanical breakdown or any major repair work, they do not have the financial resources to take care of it."
With the products from IWS, cars are covered nationwide up to 125,000 miles or nine years. Towing, car rental and roadside assistance are included.
As a result of the boost from adding these ancillary products to its auto loans, the tiny CU is not struggling, nor is it looking for a merger partner. Instead, it has been growing an average 21% per year the last three years since it implemented the program, Acosta said.
In its most recent call report, Compass Financial had $134,693 in net income for the first six months of 2014. Its net worth ratio as of June 30 was 15.96%, making it well capitalized.
In 2013 the CU reported $336,818 in net income, after paying $12,799 to the Temporary Corporate CU Stabilization Fund. Its net worth ratio was 16.52%, making it well capitalized.
First-Time Buyers
"A lot of what we do is geared toward first-time buyers," Acosta noted, adding 80% of Compass Financial's loan portfolio is in auto loans.
Added Jorge: "First-time buyers often pay more in interest because they are seen as higher risk. That can mean 18% to 19%. We do the program at 9%. That is a fair and reasonable rate, and the program helps take care of repair. This helps make it affordable."
According to Acosta, most of the car buyers Compass Financial works with are "extremely payment sensitive." He said the loan and the IWS products are introduced as a "package that has a value proposition."
"From a practical perspective, this helps us build a relationship down the road," said Acosta. "This person will be a member for quite some time."
IWS currently provides warranty protections to more than 60% of Compass Financial's members who have auto loans through the CU.
Jim Hawk, president of IWS, noted a relationship between his company and Compass Financial FCU dates back seven years.
"The relationship was started by someone who is no longer with IWS," Hawk said. "What is most interesting is how the relationship has flourished of late. Compass Financial has a strong desire to protect its members, and has used our core products to make that happen. It is always great to see credit union management protect the members."
IWS works with more than 100 credit unions across the nation. Hawk said the company is more than 20 years old, and for the majority of that time was credit union-exclusive.
"Our programs were designed and developed for credit unions," he said. "Some credit unions want different types of coverages, while some want different terms. We can customize for any credit union because we have created the program from ground up."
After entering an agreement with a CU, IWS offers its products at the institution, Hawk said. At the time of loan closing, members are offered the option of purchasing the products, including the ability to roll it in with the loan to spread out the cost.
"New cars have a certain amount of factory coverage, and when that ends owners are on their own. With used cars the factory coverage is pretty much gone," said Hawk. "Our products can be incorporated into the loan payment, which makes it very affordable."
Compass Financial is a "great" partner, according to Hawk.
"I hate the terms 'vendor' or 'provider.' We are a partner to our credit unions, and we work in lockstep with them to create products for their specific members. Compass Financial has been fantastic to work with. The management style there is great and very inclusive. It is doing some great things for its members."
Acosta said helping members deal with repair costs through the IWS products has helped Compass Financial cut down on losses and delinquencies, and has kept members in their cars. The program is transferable, which he said adds value to the car if members wish to sell.
"The program has been a great asset to our credit union," Acosta said. "IWS really shares our vision. It is a good product that helps people have a reasonable experience at the dealership when they need a repair."
