The Uniform Electronic Transactions Act (UETA) passed in 1999. Coincidentally, that was the year I joined AmeriCredit, and my journey in auto finance began. I was in my 20s and full of ideas about how great auto finance could be with less paper and leaner, faster processes.
So here we are in 2017, more than 15 years later and auto finance has more paper than it did in 1999.
The UETA was originally created to help banks find a way to eliminate the need to hold hundreds of millions of paper checks and to normalize the regulation across states. The law has since been updated to address the use of electronic signatures as well as many other enhancements to make it more effective with UCC and other financial transaction regulations.
I naively thought that 2001 would be the year to focus on getting paper out of the auto lending process, but now I know better. While I’ve experienced how hard changing the process can be, I am here to say that I have made it my 2017 goal.
Now more than ever, I’m convinced it’s time to change our lending process. Over the more than 15 years since UETA became law, technology has improved at warp speed. Dealers now have high powered computers and scanners in their offices; yet, lenders have more costs to process paper than ever before. On top of that auto lenders are facing the normal competitive landscape of a peak market and we need to find ways to lower operating cost. We have looked at all the normal places: better models, pricing, recoveries, outsourcing, etc., and we still need more.
We have $700+ billion in auto loan originations each year and we still create and often store 20+ pages of paper on each deal. Lenders pay for custodians or onsite teams to keep track and secure all this paper.
A typical origination cost per loan could range from $200 to more than $600 depending on the size and type of loan. I estimate that approximately 20% of that cost could be eliminated if we remove the paper cost and improve the efficiency for dealers. See the chart below for a scenario:
This chart assumes it takes one less person to process 10,000 loan applications. That savings could come from several areas. The most obvious are less scanning, handling and filing costs. In the paperless scenario, adverse action letters are sent electronically, contracts come into funding digitally, and time to scan and file is not necessary. The increase in closure rate assumes that offering dealers a faster, cleaner funding process without shipping costs would encourage them to contract more deals via the more efficient paperless process. They would be able to serve consumers faster and lower the costs related to shipping and copying contract files.
Knowing we can save costs and improve experiences you have to ask why not go paperless? Auto lenders might give these reasons:
- Our bank requires us to have the paper original
- Auto dealers don't have the ability or willingness to electronically present and sign all documents
- Our origination system can't handle electronic document processing and storage
- If I go to court I have to have a paper original
- The title office requires paper documents
- Every lender has a different process and it is too complicated for dealers to process
- Storing and auditing documents in multiple formats is too complicated
While valid, thanks to UETA and technology, all these reasons can now be overcome, if we work together as an industry.
I know. I had the privilege of working on the first Dealertrack team during 1999 to 2001. I was part of an effort that literally removed millions of paper loan applications from the lending process. The list of objections was huge and all were overcome with technology and process. The proof? Ask today’s auto lending newbies how applications were processed back in the "paper days," you might get a blank stare. Tell them and you’ll get a “wow I can’t believe lenders actually typed in all applications.”
I also believe now is the right time to do the same thing with contracts and compliance letters. We have the technology, laws, and tools to make this happen. We just need the will.
I’m asking you to join me in making 2017 the year of less paper. Only if we work together as lenders, vendors, partners and consumers can we reduce the use and get:
MORE time to sell
MORE consumer satisfaction
MORE deals to fund
MORE millennial sales
Let's get MORE in 2017.
Georgine Muntz is the COO, at defi SOLUTIONS, the most flexible, configurable loan origination platform on the market. Follow Georgine or read more from her on her LinkedIn.