TILA compliance

WHY YOU NEED A DIGITAL LENDING PROCESS

The defi Team defi INSIGHT, defi LOS

operational efficiency in banking sector

If you haven’t updated your legacy lending system in a while, or are looking for something better, you’re in the right place. A digital lending process takes advantage of several technical innovations, including the cloud, decision rules, imaging, mobile, and analytics. The result is that digital enables a significantly greater degree of automation. More automation means lower processing costs, better-quality lending decisions, reduced risk, improved compliance with regulations, and continuous process improvement. Digital can improve every step of the lending process—applications through servicing. Let’s take a look at each step.

Capture All Applicant Information Digitally

Borrowers are not satisfied with the auto purchasing process. The December 2017 FT Partners Fintech Industry Research Auto Fintech – The Emerging Fintech Ecosystem Surrounding the Auto Industry confirms this, and underscores the role technology plays in addressing the problem:

“Within traditional dealerships, technology-enabled solutions will no doubt become increasingly important for improving customer satisfaction and competing with new challengers.” — FT Partners

Borrowers expect to be able to initiate a loan application from anywhere—home, dealer, credit union, bank—anywhere with internet access. WIth cloud-based lending systems, lenders easily make their services available to applicants in these places and enhance their chances of improving their look-to-book ratio.  

Easily-customized user interfaces, workflow, and decision rules guide applicants in entering data. A digital process can help correct data entry errors, and optimize the workflow based upon type of application—new, used, boat, or recreation vehicle. Identification and paper documents can be scanned or captured digitally, eliminating the cost and delay associated with mailing documents to the lender.

A digital process ensures accuracy and completeness of application, captures all applicant information digitally, and facilitates a faster underwriting and funding process. As a lender, you play a key role in providing a better auto purchasing experience.

Digital Optimizes the Underwriting Process

Every lender tries to increase efficiency and decision quality in the underwriting process. When an applicant’s information, including “paperwork,” is in digital format, manual underwriting steps can be eliminated using automation, thanks to workflow and decision rules.

Decision rules applied to an applicant’s credit score determine the workflow. As an example FICO scores of 800+ may follow an auto-approval workflow, providing lending decisions in seconds. FICO scores lower than 580 may be auto-declined, avoiding waste of underwriting time and resources if that’s below your line. FICO scores of fair to very good may be assigned to workflows where a combination of additional decision rules like income verification, accessing alternative credit data, and underwriter expertise help determine creditworthiness and loan terms.

A digital lending process enabled by the cloud provides integration with credit bureaus, alternative credit data, valuation, and risk services. As part of the workflow, relevant services are automatically accessed to verify applicant information, determine valuation, or acquire additional data to determine creditworthiness or calculate risk. Then decision rules or a combination of decision rules and underwriter expertise use this information to determine creditworthiness and loan terms.

Decision rules also support compliance requirements such as Equal Credit Opportunity, Truth in Lending, Consumer Leasing, and Servicemembers Civil Relief. Decision rules ensure required steps are consistently executed, verifications are completed, and lending decisions are made according to federal, state, or local guidelines. With decision rules in place, lenders have proof they’ve implemented and consistently executed requirements as part of their lending processes.  

Digital Notifications for Speed and Compliance   

Every application requires a response. Regardless of the ratio of applications to approvals to bookings, the notification process needs to be as efficient as possible. A digital lending process allows lenders to create notification templates that are then automatically populated with applicant- and loan-specific information. Notifications are then sent via email, text messages, or printed and mailed, if absolutely necessary. Notifications are retained as digital records, making it effortless to demonstrate regulatory compliance, as in the case of adverse action letters, and eliminate the cost of storing paper documents.

Digital Servicing is Efficient and Compliant

A digital lending process makes it easy to move an applicant through the lending cycle, from application through servicing. All of borrower information acquired digitally during the application, underwriting, and funding processes automatically moves to loan servicing. With a complete digital borrower history, servicing agents access all relevant information instantly and securely to respond to any borrower inquiries.

Payments are automatically recorded, and in the event of delinquency, automatic notifications can be sent by email, text, or mail. As there are a variety of regulations that govern contact with delinquent borrowers, here again, decision rules guide the lender in complying with those regulations.  

Analytics: The Best Reason for a Digital Lending Process

A digital process creates a wealth of application, underwriting, funding, and loan portfolio data.  Analytics enable a lender to analyze in detail the lending process and portfolio performance. Analysis can show where you are already performing well (no need for improvement), as well as point out areas for lending practice improvement. With analytics a lender can:

  • Identify time-consuming loan origination tasks that can be improved through the use of decision rules and better workflow;
  • Compare year over year performance of a segment to determine if credit policies should be modified to improve portfolio segment performance; and
  • Identify borrower attributes that lead to unexpected delinquencies and use that insight to tighten credit policies to reduce risk.

Analytics alone may be the best reason for adopting a digital lending process. With all of the borrower information captured digitally and every step of the lending process recorded digitally, analytics can provide insight to continually improve lending efficiency. In a competitive lending market, this type of continuous process improvement is essential to sustain profitability.

Getting Started  

defi SOLUTIONS offers a cloud-based system that enables you to achieve a digital lending process, from loan origination through loan servicing. The system is quick to implement and provides powerful analytic capabilities for actionable insights based on process and loan performance to help lenders compete in today’s market. The defi SOLUTIONS team welcomes the opportunity to discuss your digital lending needs. Contact our experts, or schedule a demo to see how we’ve employed cloud, automation, decision rules, and analytics to help you achieve greater efficiency in your lending business.

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