2018’s big auto finance news is that the US House and Senate voted to repeal the CFPB decree on auto-loan financing. The repeal takes pressure off indirect lenders for the moment, but there’s still a big load of regulations for lenders overall. Federal, state, and local regulations require lenders to understand and implement a growing and evolving set of regulations: TILA/Reg-Z disclosures, Equal Credit Opportunity Act, Consumer Leasing Act, Fair and Accurate Credit Transactions Act, Risk-based Pricing Rule, and Servicemembers Civil Relief Act, to name few. Regulations are already complex at the federal level, but they become even more challenging with the variation of requirements among states—and they may seem overwhelming at the local level.
Rarely a week goes by in auto finance news without mention of the continued importance of regulations, and the sustained efforts made by lenders to comply. It’s a credit to the lending community that they focus efforts to accurately interpret and apply relevant regulations. A few examples illustrate the community’s focus on compliance:
- Tidewater Finance Company reinforces its program with manuals and a learning management program to ensure compliance with CFPB and new state statutes
- FTC to Give Cybersecurity Guidance at Performance & Compliance Summit and discuss lessons learned from previous FTC enforcement actions
- Mulvaney to Steer CFPB Regulation Away From Dealers: CFPB will no longer instruct auto lenders on how to govern dealership practices
- Regulators to Keep Pressure on Deceptive Practices, Ancillary Products: Despite perceived regulatory easing, lenders are advised to stay focused on compliance
Auto Finance News: Impact of Regulations
How will regulatory compliance shape loan processing in the near term? From a lender’s perspective, there are three takeaways. First, stay focused on regulatory compliance as part of your business strategy. Second, adopt the means to quickly implement regulatory changes related to auto loan processing. Third, be able to easily demonstrate compliance in the unfortunate event you are audited.
Stay focused on regulatory compliance as part of your business strategy.
Continue to Prioritize Compliance
Judging from recent news, regulations and compliance will continue to stay in the headlines. Industry and political entities at every level (federal, state, and local) guarantee it. As a lender, you’ll need to monitor and assess the regulatory changes that directly impact your lending operations.
The very technologies transforming loan processing can also help lenders meet compliance objectives. Andy Mayer, vice president of F&I solutions at Dealertrack, underscores this idea in How Lenders and Dealers Differ In Adopting New Technology when he observes that “Lenders need to keep compliance in mind when they make their business decisions regarding technology and how that affects them.“ [Lenders] are concerned about fraud and about compliance. I think they have different technical needs, but they also have regulatory needs driving how they do business.”
With the expectation of continued regulatory changes, some predictable, others uncertain, how will technology help lenders to implement specific regulatory requirements that impact their lending practices?
Easily Implement Regulatory Changes
To easily implement relevant regulations imposed by federal, state, or local entities, lenders need software solutions that are cloud-based and configurable by business users. Why the importance of a cloud-based solution? Unlike a legacy lending system, a cloud-based system is quickly implemented and easily updated. This lets you use the latest functions and capabilities provided by the software vendor. Often those improvements are driven by requests from the user community. And when a software vendor is exclusively focused on the lending industry, you can be sure that they’ve designed the solution to help you achieve and maintain regulatory compliance.
How does configuration help to implement regulatory changes? Unlike legacy lending systems that require programming expertise, or expensive and protracted custom development to make modifications, a modern lending system lets business users make modifications themselves to meet the latest compliance requirements. Browser-based configuration tools let you:
- Modify drop-down menus, screens, or data fields in support of regulatory changes
- Integrate third-party data sources and services such as applicant verification, vehicle valuation, or compliance calculations for more accurate decisioning processes
- Develop decision rules to replace variations and inconsistency in manual processes by automatically and predictably evaluating specific lending criteria
- Track and test all configuration changes made to the system prior to ensure they accurately meet regulatory requirements, prior to placing them in production
A configurable, cloud-based lending solution allows business users to quickly make changes to their lending practices and processes to achieve and maintain compliance. No need to depend upon programming or technical expertise to make these changes. Configuration tools allow those who are most knowledgeable about the regulations—the business users—to easily make those changes.
The ability to configure a lending system addresses one additional regulatory need—the ability to demonstrate compliance in the event of an audit. By keeping records of configuration changes a lender can easily demonstrate the specific actions they’ve taken to comply with specific regulations.
The ability to set security and permissions for users provides a level of authorization and responsibility by limiting configuration changes users are allowed to make, e.g., data integrations, developing or modifying decision rules, and adding new data fields to the screen. Whenever a modification is made, the business user, date and time, and specific configuration change are recorded. This detailed information is available in a report format for review by auditors. Reports can also be generated to show how individual applications were processed according to the configurations in effect at that time. These reports can provide further evidence that lending policies and processes conform to regulatory requirements.
Auto Finance News: Focus on Compliance
Based on auto finance news in 2018, we have every reason to believe compliance will remain a newsworthy topic. Lenders should maintain focus on the changing and evolving regulations enforced by numerous federal, state, and local governments. These regulations will continue to shape loan processing practices in the near term, and well into the future.
To efficiently and effectively accommodate any regulatory changes, lenders need to employ software solutions that make it easy to make procedure and process modifications in keeping with current regulatory requirements. A configurable, cloud-based lending solution is the best means to accomplish this goal. It is easily implemented and frequently updated with capabilities to help lenders achieve, maintain, and demonstrate compliance.
defi SOLUTIONS intimately understands the needs of auto lenders and has developed a fully configurable, quickly deployed, cloud-based loan origination system. It is designed to help lenders easily make modifications to their lending practices and processes to conform to current regulations. We know how challenging the regulatory environment can be and we’d welcome the opportunity to discuss your specific compliance requirements. If you’d like to see our loan origination system in action, and learn how our configuration capabilities support your compliance needs, please just sign up for a demo.