Some captives charging dealers for failing to process loans digitally

Hyundai Capital America is charging dealers fees for paper contracts to get them to switch to e-contracting, and GM Financial is soon to follow, Auto Finance News has learned. GM Financial effective Aug. 1 will start charging General Motors dealers who do not meet a “ 75% monthly e-contracting threshold ” a $200 fee for each paper contract the captive funds, the company confirmed. “The e-contract is cost-efficient for GM dealers and provides a better experience for our GM customers,” a GM Financial spokesperson added. GM Financial is not alone. Hyundai Capital America in 2020 implemented a $50 fee per paper contract “to support processing fees,” a company spokesperson told AFN . The fee has led to a penetration rate for e-contracting among its dealers of nearly 90%. The HCA fee was “designed to encourage e-contracting in an effort to improve our customers’ experience,” the spokesperson said. “Paper contracts unfortunately have a notably higher error rate, which was diminishing our customer’s finance and insurance experience at dealerships.” Still, not every lender has implemented contract fees. American Honda , Ford Credit and Mercedes-Benz Financial Services USA do not charge dealers fees related to paper contracts, a spokesperson from each company told AFN . Stellantis Financial Services also does not charge a fee for paper contracts, with the captive accepting both paper and e-contracts “with no requirements that a certain percentage be e-contracts,” a company spokesperson told AFN . Nissan Motor Acceptance Company , too, isn't charging fees to dealers who do not use e-contracting, a company spokesperson told AFN . " We are already seeing a very high adoption rate on e-contracting," the spokesperson said. Other captive lenders did not respond to AFN requests for comment by publication time. Paper slows funding It takes twice as long for lenders to process a paper contract compared with a contract completed digitally, Michael Douglas , head of dealer operations at Chase Auto , told AFN . The fees are a way for lenders to address operational challenges associated with paper contracts, he said. “Dealers have shared that some of their captives are charging fees on paper contracts, particularly if they aren’t also sending in a certain percentage of their contracts electronically,” Douglas said. “Previously, lenders likely would have given a discount for an e-contract as an incentive, but now [e-contracting] adoption is strong and processing the paper outliers creates inefficiencies. This represents a changing mindset for lenders, where we are all trying to adapt to new norms while still providing resources to accommodate the old way of doing business,” he said. Chase Auto does not charge dealers for paper contracts but acknowledges that lenders face increased costs and are looking to automate more of the funding process, which starts with an e-contract, Douglas said. In fact, dealers report that digital contracting speeds funding by about 83% compared with paper contracts, Andy Mayers , lender solutions strategist at Cox Automotive , told AFN . “Digital contracting affords dealers a faster process and deal completion and also provides lenders with more efficiency,” Mayers said. The industry has seen an uptick in digitalization, with the volume of digitally originated auto loan contracts up 21% year over year to about 2.1 million contracts as of Q4 2023, according to software provider Wolters Kluwer ’s latest Automotive Finance Digital Transformation Index. The National Automobile Dealers Association did not respond to a request for comment. Editor's note: The story has been updated to reflect that GM Financial's paper contract fee will take effect Aug. 1, 2024. Early-bird registration is now available for the second annual Auto Finance Summit East 2024 , May 1-3 in Nashville, Tenn., which gathers lenders, dealers and fintech innovators in an event designed to bring the power of technology to a cross-section of industry players. Early-bird pricing ends March 15. Visit AutoFinance.Live to learn more.

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