“We expect that the next five years will bring more change to auto finance than the past 50 years combined.” That statement from PricewaterhouseCoopers, made in the consultancy’s Auto Finance Risk and Compliance Highlights 2017 report, was based on research into the numerous factors affecting auto lending. With urbanization, evolving models of vehicle ownership, changing consumer expectations around digital processes, and fluctuations in state and federal regulations, simply achieving compliance is no longer enough. Lenders need efficient, cost-effective compliance tools that let them quickly modify business policies, adjust lending processes, and adapt technology to their procedures in order to maintain compliance and meet audit requirements.
Here are five must-have features of modern technology for lenders dealing with fast-moving compliance requirements.
System Flexibility. While the compliance end goal for all lenders may be the same, each might want to chart a different course to make that happen. Consider adverse-action letters. Some lenders send letters at 10 days, while others send after 20 or 30 days. Some lenders send a generic letter, and others tailor the contents to the specific circumstances of the applicant. A lending system must allow each lender the flexibility to follow its internal processes.
System Configurability. How does configurability differ from flexibility? A flexible system can be made to conform to a lender’s operational guidelines, while a configurable system gives the lender tools to make its own changes. A modern LOS lets business users with the most in-depth understanding of the processes and the intent behind specific regulatory requirements make their changes using configuration tools and menus, saving on development costs.
Decision Rules. Most lenders have dozens to hundreds of decisioning rules incorporated into their underwriting practices. Whether structuring a loan according to the Servicemembers Civil Relief Act, accessing alternative credit data because of a low credit score, or confirming that all documents for credit review and qualification have been submitted, automation brings accuracy and consistency while self-configuration lets each lender stay true to its legal team’s interpretation of the intent and letter of the law.
Data Integrations. Pre-integration with data sources and services such as identity verification, alternative credit data, vehicle evaluation, and document services help lenders steer clear of risks that can jeopardize compliance. Business users can choose which sources and pieces of data they need during underwriting and funding to execute calculations or to create a more detailed applicant profile.
Reporting and Analysis. Are you achieving dealer response service-level agreements? Did applicants receive notifications within required timeframes? Were any deals or declines “outliers” that could be interpreted as disparate action? A well-designed lending system demonstrates which rules, policies, and procedures were in effect, proves that only authorized users configured the decisioning rules, and shows consistency and transparency in decisions and processes to demonstrate that lending practices are not discriminatory. Auto lending compliance requires continuous monitoring efforts but need not be burdensome. A flexible, configurable lending system brings added efficiency and regulatory compliance to processes and is an investment in the future of your business.
With more than 20 years in the auto finance industry, Lana Johnson leads the charge to drive innovation at defi SOLUTIONS and create better experiences for everyone involved — clients, team members, partners, and investors. As defi COO, she creates a strategic vision and leads the teams that solve complex challenges. defi SOLUTIONS is the Technology Partner of Auto Finance Excellence (AutoFinanceExcellence.org), a sister service of Auto Finance News.