Our Products / Consumer Vehicle Lease
1) Key Program Features
CULA’S Indirect Auto Leasing Program merges nicely with any existing indirect lending program or centralized lending structure. Using the same dealer network as your indirect auto loan program, CULA’s automobile lease product can be offered to existing and potential members alike when financing options are discussed at the dealership. The lender makes the credit decision, the dealer executes the necessary paperwork and the lender funds the dealer directly. CULA’s comprehensive insurance protection and claims administration, as well as its unmatched experience with member education and disposition of returned vehicles at lease end assures a safe, competitive and compliant program that is proven to increase the lender’s loan growth.
A) Residual Value Risk Management
What is residual risk and why is it important? Let’s look at the overall structure of a lease to definitively answer that question! You can also view our webinar on residual risk by clicking here.
First - There’s Residual Value
All consumer vehicle leases have a residual value. A residual value is an estimated future value of the vehicle.
Next - Setting the Residual
Setting residuals is a science. All types of market factors and economic conditions are considered when setting residual. At CULA we are leasing specialists, not scientists. That’s why we partner with the most established and reliable residual value source in America, Automotive Lease Guide (ALG). ALG provides the residuals, and works with CULA to help monitor those residuals to ensure that residual risk is manageable.
So, What’s the Risk?
To understand the risk, we must first understand how the automobile lease is funded at the financial institution.
How the lease is funded:
The auto lease is booked at the lender as a balloon loan. The lease payment is determined by taking the depreciation of the vehicle (the depreciation is the difference between the Net Cap Cost — aka loan amount and the residual value aka balloon amount) and then adding to that the amount of lease charges- aka interest. So, a lease payment looks like this:
Depreciation + Lease Charges = Base Payment
Aka… Principal + Interest = Base Payment
Want to see some lease definitions? Click here.
Now, let’s discuss the amortization:
The lease is amortized with all payments being equally distributed over the term (i.e. 60 payments). After the last payment is made, in a perfect world, and a perfect lease, with a perfect member, and perfect payments made in perfect time, the outstanding lease balance should equal the residual value, aka balloon amount.
Finally – Lease End:
After all payments have been made, where does the money come from to pay off the outstanding lease balance? From the member? No — this is a closed-end lease and if the member has made all payments and has kept to the terms of his lease agreement he/she owes only a contractual disposition fee.
Does CULA pay the residual? Not exactly. Here’s how it works:
At lease end, CULA expertly remarkets the vehicle. Once we sell the vehicle, the purchaser sends the lender a check for the sales price (your lease, your money!). Now, what if the residual is $10,000 but the sales price is $8,000? Who makes up the $2,000 difference?
That question is the reason residual risk management is so important!
To find out who makes the financial institution whole at lease end, read on!
Here’s how CULA manages residual risk!
Setting conservative residuals is one of the many factors to managing risk. Targeting vehicles with historically strong resale values goes hand in hand with this practice. Combined with solid residuals this business philosophy is the foundation to a risk-managed portfolio.
The Seamless Lease Connection
Providing solid residuals is one thing, but how is the lender to know if the residual the dealer used on the contract is the right one? CULA provides The Seamless Lease Connection, an Internet-based lease validation tool that provides not only the approval of the residual value before you fund the automobile lease, but a wide variety of portfolio management tools and reporting features.
Residual Risk Analysis
Every 90 days, we not only grade ourselves on how we are doing, we give our credit unions and banks our report card! We provide our credit union and bank leasing partners a comprehensive, individualized portfolio risk analysis.
Residual Risk Management Team
CULA has a Residual Risk Management Team. Armed with market analysis and risk reports from ALG, the team analyzes the portfolio. We compare those results to our current portfolio. If one of our popular models is not performing well, we may become even more conservative on the residual in the future.
Once we publish our report card to our credit unions and banks, we follow it up with individualized attention. Let’s say one partner has a few vehicles that, upon review, seem to pose a higher risk of loss than was originally forecasted. We will work with the lender on remarketing those automobiles prior to lease termination in order to reduce the potential loss.
The Holdback Account
At program inception, CULA opens a savings account at the lender. A portion of every acquisition fee (paid at lease inception by the lessee) and a portion of every disposition or termination fee (paid at lease end by the member) is deposited into this account. We call it the “holdback account.” It is held at your financial institution, earning interest at your financial institution, and is funded out of CULA’s fee proceeds on each and every lease. Should a vehicle experience a residual loss at lease end, like the $2000 scenario described earlier, the difference comes out of the holdback account to make the lender whole: your auto lease, your lessee and our account at your financial institution. In short, your residual value risk is our responsibility!
Residual Value Insurance
At CULA we don’t just stop with the wide variety of risk management best practices we’ve just described. The icing on the cake is our Residual Value Insurance Policy! Every lease on our program is enrolled in this policy. In the event that an annual portfolio experiences more losses in total than gains, the insurance policy will pay toward those losses. How often are claims paid? Almost never… because we are great at managing the residual risk, remarketing the vehicles at lease end, and making the lender whole. Our holdback accounts are historically funded far greater than the forecast of our most liberal risk!
At CULA we’ve remarketed over 35,000 vehicles in 25 years, totaling over $35 million dollars. Our experts have been managing residual risk and remarketing auto leases for many years with much success! Our financial institutions have never experienced residual loss at lease end!
B) Comprehensive lessor related insurance
CULA’s proven program is an excellent way to increase your market share by offering your members the benefits of automobile leasing in addition to your existing indirect lending program and other financial services. We provide a wide variety of insurance products on each and every lease.
- Contingent Liability/Contingent Physical Damage Insurance
- Full Care, Custody, and Garage Keepers
- GAP Insurance
- Residual Value Insurance
- The lender is named as the loss payee guaranteeing the lender receives the insurance benefits
C) NCUA, state and federal program compliance
Keeps the program up-to-date and gives the financial institution peace of mind:
- CULA’s leasing program is designed to be compliant with NCUA’s ruling regarding credit unions and banks engaged in Indirect Leasing
- State compliance and federal leasing laws are carefully monitored to ensure a compliant lease financing program is in place
- The industry’s lead counselor, Nisen & Elliott, LLC, has been partnering with CULA to ensure state and federal compliance.
D) Complete packages customized for your program
All necessary forms, designed to be NCUA-compliant, provided at no cost to the financial institution:
- No need to create forms or other documents
- Customized automobile lease agreements that are state specific
- “The most member friendly lease available”: Closed-end lease, no security deposit, no pre-payment penalties, selling price fully disclosed, flexible mileage and lease terms, GAP insurance included, many lease-end options
- Pre-Owned (Used) Vehicle Leasing “UVL”: With a growing demand for quality pre-owned newer-model vehicles, our used automobile leasing program makes perfect sense. In addition to capturing new automobile leases, you’ll experience enhanced market share growth with this product.
- Comprehensive residual value website that provides new and used automobile residuals, program documents, and program policies and procedures.
- Online Training manuals for staff
- Training manuals for dealers
E) CULA performs tax filings and lease accounting
Full lease accounting and management provided:
- Relieves the lender of accounting and tax remittance responsibility
- CULA reports and remits the sales tax and manages all lease accounting, including FASB 13
- Reduces accounting work performed by the lender
F) Extensive and on-going staff training
In-house planning and training at all levels. Assures the program launches and runs smoothly:
- CULA provides pre-implementation planning and training
- Comprehensive training manuals for staff
- Ongoing training by experienced trainers
- Senior management and board member training sessions
- A CULA Service Manager is assigned to assist your financial institution
G) Dealer Training and Support
Active presence and support at the dealership. Secures dealership loyalty to your program:
- Trained dealer representatives
H) Comprehensive member education regarding lease-end options
Multiple resources made available to members at lease end. Keeps members satisfied with their leasing experience:
- Personal tele-consulting, educational brochures and complete follow-up provided
- Member education and convenience is emphasized
- Enhances member retention and product satisfaction
- Member section of CULA website with numerous resources
I) Uniquely effective remarketing services
Experienced disposition experts aim for top dollar recovery. Sales proceeds maximized, selling time minimized:
- CULA’s remarketing department assists the member with convenient vehicle return and disposes of the vehicle for the lender
- Unique remarketing strategies for lease returns using nationwide industry relationships provide maximization of sales proceeds, while minimizing the time for selling off-lease vehicles
- Assistance with repossessed vehicles also available
To print a presentation of this information, click here to be directed to our marketing documents.
BACK TO TOP
2) Benefits to your Lessee
Your financial institution should offer a superior lease program, specifically designed to meet the needs and expectations of the financial institution lessee. At the heart of our program is The Lender Lease — an automobile lease with the lessee’s best interest in mind. The Lender Lease has some clear advantages:
A) All Fees Disclosed
All fees are fully disclosed before the member signs. This provides peace of mind with no hidden surprises.
B) No Down Payment Required
There is no down payment or security deposit required as part of The Lender Lease.
C) Simple Interest Calculation
Simple Interest is the fairest lending calculation methodology which helps keep the member’s payoff balance lower.
D) Lower Monthly Payment
A lease payment is typically 30-40% lower than a conventional loan payment! Example:
2015 Toyota Tacoma Double Cab V6
Term: 60 months
Sales Price: $32,000
Interest Rate: 3%
Sales Tax Rate: 8%
Residual Value: $19,200
|Difference in total Payment
|Savings over the term: over $18,366!
E) No Early Termination Penalties
Many auto lease programs impose penalties, even thousands of dollars if the lease is paid off early. Because the Lender Lease is simple interest, there is no “front loaded” interest to pay if the member terminates early. Instead of penalties like front loaded interest, the member is responsible for a market competitive purchase option fee (as disclosed in the lease agreement).
F) GAP (Guaranteed Automobile Payoff) Insurance
This is a standard part of The Lender Lease. It protects the member against any uncovered costs arising from non-recovered theft of their vehicle or if his/her vehicle is declared a total loss due to an accident (less their insurance deductible).
G) Can Convert To A Conventional Loan At Any Time
Lessees have the freedom to convert the auto lease to a loan (subject to lender approval) or to purchase the car outright, at anytime during the lease with no penalties.
H) Adjustable Mileage Limit
Annual mileage of 12k and 15k are available as well as custom mileage above 15k. A custom mileage auto lease can be created with mileage limits that fit each member’s personal driving patterns.
I) No Cash Outlay for Taxes and Registration
Initial taxes and registration fees can be included in the capitalized cost of the automobile lease. There is no up front taxation of the vehicle purchase price for the member to pay or for you to finance.*
*In some states, sales tax on monthly payment is due in total at lease origination.
J) More Options At Lease End than a Conventional Loan
With The Lender Lease, the member has many options available; purchase and keep or purchase and sell at any time, convert to a loan, find someone to assume the automobile lease, trade-in at a dealer, or turn in at the end of the lease term.
K) Long Term Test Drive
A lease can be viewed as a long-term test drive. If the vehicle is worth less money than the residual at the end of the lease, the member can turn-in the vehicle and not be liable for market devaluations.
L) Lease-End Member Assistance
The lessee is contacted prior to the expiration of his/her lease by CULA’s customer service representative. The customer service rep works with the member regarding their lease-end options and how to conclude their responsibilities based on the member's selected option at the end of the lease term.
M) Member Education
CULA sends out a welcome brochure to your member at lease inception and additional education pieces at lease end. CULA.com also provides several member tools geared at educating your member about his lease, including the webinars “Why Lease”, and a Lease End Video. To view our member education pieces, click here.
BACK TO TOP
3) Lenders Benefits
A) Opportunities for YOUR Financial Institution
Market influences beyond your control can slow the growth of your financial institution. Factors such as a slowing economy, rising interest rates and competitive offerings by similar financial institutions can stagnate your key products portfolio such as credit cards, mortgages and vehicle loans.
Your financial institution’s growth by successfully attracting new members, member retention and increased market share depends on the products and services you now offer. For many financial institutions, expanding growth means expensive advertising, cutting loan margins and a lot of hard work.
CULA’s proven program is an excellent way to increase your market share by offering your members the benefits of automobile leasing in addition to your existing indirect lending program and other financial services.
B) Vehicle Leasing Provides Financial Institution Growth
Financial Institutions are now adding automobile leasing to their list of services as a way of increasing their customer base and loan portfolio.
When the CULA lease program is fully implemented — our experience indicates that a financial institution will increase their customer and loan portfolio by allowing your dealer network to make members for you.
Did you know that vehicle leasing represents 25%* of all new vehicle transactions in the U.S.? In many regions of the country, leasing penetration is as high as 40%. If you are not offering an auto leasing option, which one of your competitors is gaining your existing and potential members’ loans and deposits?
*Lease Penetration data provided by NADA, 02-10-2015
C) Rewarding Benefits for Financial Institution
- Automobile leasing offers customer growth for your financial institution
- Automobile leasing offers increased loan portfolios
- Financial Institutions earn more interest from vehicle leases than from loans
- Automobile leasing offers you the opportunity to provide a valuable service to your existing customers, who otherwise would obtain an auto lease outside your institution. Someone is leasing to your member… if not you, then who?
- Automobile leasing provides an opportunity to expand your membership with
those individuals who are already interested in leasing
- Cross-selling your existing services to your new members that have
been attracted through automobile leasing
BACK TO TOP