HOW DIGITAL DOCUMENTS ENSURE AUTO LENDING REGULATORY COMPLIANCE

Banks, credit unions, and fincos with auto lending operations can improve efficiency and reduce costs by replacing paper documents with digital documents. Legacy lending solutions designed and deployed in an era prior to cloud, mobile, and fintech innovations cannot match the digital document capabilities available in a modern loan origination solution. We recognize the challenges of making the transition from paper to digital documents. However, there are many compelling reasons to adopt a modern loan origination solution that supports a digital document lending cycle. Two of them are significantly greater process efficiency and the ability to ensure compliance with the numerous regulations that govern auto lending. Let’s contrast the problems of paper with the benefits of digital.

How Digital Documents Ensure Auto Lending Regulatory Compliance

Paper Takes Time and Space

There are two inherent problems in working with paper: the amount of time and the amount of space it demands. Most auto loan applications today are initiated online. However, in many loan origination processes, the information captured via computer often makes its way to printed forms and documents sent by mail or express to the lender. Supporting documents such as copies of drivers’ licenses, pay stubs, or proof of residence add to the paperwork. That process is rife with inefficiency and unnecessary costs: Paper, copying, printing, postage—and the delays that come with them.

Paper Gets Misplaced and Lost

On the lender’s side, paper problems continue. Loan application documents can be easily misplaced or even lost. High volumes of loan applications increase that likelihood. If any of the applicant information needs to be re-keyed, there’s always the chance of making a mistake that delays the process. Storage of these documents in file cabinets, banker’s boxes, or offsite only adds to the cost of handling paper.

Paper is Not the Ideal Means of Ensuring Compliance

Regulation Z of the Truth in Lending Act (TILA) requires to disclose loan terms and annual percentage rates in loan offers. If you decline credit, Regulation B of the Equal Credit Opportunity Act (ECOA) requires you provide notice of adverse action and the reason. In addition to federal regulations, states may have specific regulations regarding disclosure and communications. Although lenders may believe they are fulfilling regulatory requirements by delivering this information in a paper format to applicants, it’s not the optimum approach. Clerical errors can omit a required document. You incur postal costs. If you’re required to keep copies for your records, you’re adding to ever-increasing volumes of paper storage.

Every touchpoint involving paper reduces process efficiency, increases costs, and introduces the chance of errors. A modern loan origination solution that supports digital documents addresses each of these problems and helps ensure you comply with auto lending regulations.

Digital Documents: Savings and Compliance

The immediate benefit of digital documents is the elimination of time and costs associated with paper. Loan applications, approvals, declines, and contracts are the most document-intensive phases of the lending cycle. In each of these phases, digital documents accelerate process speed, improve information accuracy, and consistently execute tasks to ensure compliance with regulations.

• Applications: Capture supporting documents (driver’s license, pay stub, proof of residence) via scanner or mobile device. Include these digital documents with applicant information captured via computer and electronically send the information to the loan origination system. Apply optical character recognition (OCR) technologies to the digital document to capture and verify that information. Automatically initiate the loan origination process as soon as all applicant information has been received.
• Approvals: LOS workflow automatically populates loan approval form with applicant information and offer details per Reg Z requirements. Create any additional documentation required by state or local regulations. Save all documents in PDF format and send to applicant via email. Retain copies of PDFs and email per records retention requirements. Optionally send a text message to alert applicant of the loan offer.
• Declines: LOS workflow automatically populates adverse action notice with applicant information and reasons for decline per Regulation B requirements. Save notice in PDF format and send to applicant via email. Retain copies of PDFs and email per records retention requirements. Optionally send a text message to alert applicant.
• Contracts: Potentially the most document-intensive phase, electronic contracting lets lenders package all relevant deal information in digital format and send it securely to the borrower. Contract documents can be reviewed and signed on mobile devices via secure e-signatures. All signed documents are automatically retained with the highest levels of protection and compliance to maintain the authenticity of the original documents and integrity of their content throughout the loan cycle.

Digital documents, driven by workflow and automation, help ensure lenders meet regulatory requirements by employing a consistent, auditable process to create forms, documents, and notifications in accord with federal and state lending requirements, and securely retaining required documents and communications as evidence of compliant lending practices.

There’s much more to learn more about the capabilities and benefits of electronic contracts in the loan origination process. Attend the Building Your End-to-End eContracting Experience in Auto Finance webinar now.