Maintaining Compliance With Loan Origination Automation: Guidelines for Auto Lenders

Maintaining Compliance With Loan Origination Automation: Guidelines for Auto Lenders

Compliance is one of the most important aspects of any business operation. It helps to ensure that every company or institution works according to the rules and regulations of their industry. This is why companies need to maintain compliance at all times.

It is not easy to maintain compliance with the ever-changing regulatory environment. Luckily, automated solutions enable lenders to maintain compliance while also helping them meet their business goals. With modern LOS systems, companies can focus on their business objectives without worrying about compliance risks.

Maintaining compliance is not just about complying with one regulation or law. It’s about ensuring that all regulations are followed—from federal to state-level statutes. Let’s take a closer look at loan origination automation guidelines for maintaining compliance.

Compliance in The Lending Industry

Many automated processes have been created to streamline the lending process. However, it is crucial that these processes have built-in safeguards to ensure compliance with the law and company policy.

The borrowing and lending industry has several regulations in place that must be followed. For example, the Dodd-Frank Truth in Lending Act stipulates that companies cannot lend money without proper documentation (such as a credit score). 

The lending industry has been a highly regulated industry for decades. This regulation is enforced to protect consumers and ensure that loans are made with integrity. However, the industry as a whole is also subject to strict compliance guidelines.



Laws, regulations, and codes govern regulatory compliance. 

In the United States, auto lenders are regulated by the Consumer Finance Protection Agency (CFPB), which reported $124 million in penalties in 2020. Lenders are required to comply with various guidelines that cover data security and privacy and breach notification procedures.


Industry compliance is focused on internal policies and procedures. 

Industry compliance requires lenders to be responsible for implementing best practices within an organization or institution, as well as for maintaining transparency with their stakeholders.


Some of these consequences would include fines from regulators or even monetary damage from consumers if they were at risk of being impacted by a data breach. The lending industry often has difficulty keeping up with the changes in these requirements, which makes it tough to plan for future compliance. With automated loan origination software, lenders can manage their compliance while also having more time to focus on other aspects of their business.

Loan Origination Automation Guidelines for Built-In Compliance

When selecting a LOS system, auto lenders need to be mindful of compliance with both regulatory and industry guidelines. 

Loan origination software manages the compliance process by helping lenders ensure that they are not breaking any laws or regulations within their lease or loan processes. It also helps lenders avoid costly fines and regulatory penalties that can lead to lost business opportunities

Automation for Compliance and Efficiency
Loan origination automation helps lenders and borrowers by providing transparency, efficiency, and a streamlined workflow. The latest automation technologies improve every step of the lease or loan origination process. Automation gives lenders consistency and ensures that the required steps are taken in the proper sequence. An automated process eliminates the variability and uncertainty of manual processes. It allows lenders to tailor their workflows to the specific needs of the lender’s practice. Automation also ensures near-immediate loan approvals and helps lenders capture the loans they need to grow their business.

Modern software also comes pre-integrated with third-party data providers, and automated decision rules guarantee that required verifications are made when determining creditworthiness. They also coordinate information contained in notifications and determine the correct communication channel(s) based on the applicant’s profile. Automation gives you a digital map that demonstrates every step your lending processes take and how your decisions are made. While this larger degree of automation significantly improves your lending practices and allows you to maintain a competitive edge, it also makes it easier to demonstrate compliance.

Digital Documents are Records of Compliance
The majority of lending regulations focus on transferring data between potential borrowers and lenders. Historically, application processes were paper-based trails manually handled by underwriters. This process made it challenging when lenders needed to provide a specific document. For this reason, the digitalization of the loan origination process has greatly improved the management of documentation and communication between lenders and applicants.

Not only because the digital format eliminates storage costs, but more importantly, because documents will never be misplaced or lost. Critical communications between lenders and borrowers are securely stored, including credit score disclosures, adverse actions, delinquency notifications, and many others. From the compliance perspective, providing evidence that you have followed regulation requirements in your communications is easy to do.

Analytics to Monitor Compliance
The analytics provided by modern lending systems gives lenders another level of confidence in their compliance. Analytics play a crucial role in helping lenders maintain compliance in several ways, including:

    1. Analytics gives lenders the ability to monitor their servicing and underwriting process so they can confirm their lending decisions are being made in keeping with regulations.
    2. Analytics also gives lenders insight into areas of non-compliance, trends, and any outliers within those trends that need a closer look.
    3. Analytics can track underwriters who are making exceptions and determine any potential risks.

Modern lending technologies allow lenders to analyze their lending process in great detail and are a powerful tool in demonstrating that you are complying with the required regulations. But, the capabilities of analytic tools do more than just support compliance, they can be used to understand and improve your lending performance.

Modern Configurable Loan Solutions
One of the biggest obstacles in maintaining compliance is the time and cost of depending upon legacy software vendors or third-party developers to code regulations into their systems.

Modern, configurable software has allowed lenders to overcome those obstacles. Cloud-based loan origination technologies allow lenders to translate relevant regulations governing their specific lending business. As an example, let’s examine the advantages of configurable auto loan decisioning rules in regards to compliance:

    1. In response to federal, state, and industry regulations changes, lenders can easily modify their decisioning rules.
    2. Lending professionals can develop and implement their business’s unique decision rules—coding and technical experience are not required.
    3. A record of which rules were in effect at which time, as well as who, when, and where decision rules were implemented, provides lenders with evidence in the case of an audit.
    4. Underwriters and servicing agents don’t have to remember where or when to apply regulations.

In a modern lending solution, configuration capabilities provide authorized lenders with user-friendly menus to select data fields, how to evaluate the data, and which actions to take based on those evaluations.

By complying with regulation directives, your lending process will become more transparent and consistent. Using a modern auto lending system and following the loan origination automation guidelines of automated decision rules, digital documents, analytics, and configurable software, you will more easily achieve and maintain compliance.

Ready For Added Efficiency and Confident Compliance?

Compliance doesn’t have to be a burden or slow your lending process down. The same capabilities provided by modern, configurable auto lending systems that help you meet your compliance requirements also provide you with a more efficient lending process. While it does take effort to monitor, interpret, and apply relevant changes to your unique lending process. Your investment in maintaining compliance will pay off by leading to better lending opportunities. 

The most powerful tool for maintaining regulatory and industry compliance is configuration. By eliminating the traditional cost and time required to modify legacy software, modern configurable software allows lending professionals to address regulatory compliance requirements quickly. The results are confident compliance with an agile system that doesn’t require outside technical expertise or months of coding to keep it updated with the latest securities or automation technologies.

Getting Started

 defi SOLUTIONS‘ lending software experts welcome the opportunity to answer any of your questions about loan origination automation guidelines. Our modern configurable software has built-in compliance. So take the first step toward achieving compliance and a more efficient lending process by contacting our team or registering for a demo of defi LOS.

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