3. New Technologies Needed If the CFPB acts, dealers and lenders will need new technologies and processes, if they want to be able to execute on bringing final, approved loan terms up front – and if they want to be able to show transparently and easily that each funding decision was discrimination-free. We will need new ideas such as industry-neutral loan decision “engines” that can bring real, final financing decisions and terms to the front of the sales process, either online or at a dealer kiosk. This can only happen if such a technology platform allowed all lenders to input their exact credit programs and loan rules terms into the engine. Such an engine could then match all the lender data to the consumer’s credit file, selected vehicle and vehicle price to generate real, final terms of approval, displayed to the dealer or consumer instantly. And it would be able to provide complete transparency into funding decisions, because it could program loan underwriting guidelines for each lender consistently. That means dealers and lenders would be able to show the CFPB a clear audit trail on every decision – always and easily. That would get the compliance and discrimination-charge monkey off their backs for good. A digital platform like this – with lender program integration at its core – could transform auto financing. It could take the whole sales and financing process to under an hour. Costly loan rewrites and unwinds would be eliminated. Lenders would only incur costs for credit applications they’re likely to fund. And it would provide the only logical, manageable compliance protection, if new regulations hit.
4. Transparency Finally Swings in Dealers’ Favor There’s much talk about how online car buying has brought a new era of “transparency.” But all of that transparency is now in the consumer’s favor. Stealth online car shoppers get to know everything about the vehicle, the price and the dealer, but they hide behind a virtual cloak of anonymity. If they fill out a lead form, dealers have to endlessly follow up to find out whether they actually want to buy a car, or if they can afford to, at all. But in a world where financing has to move up to the starting gate, transparency is going to swing wildly in the dealer’s favor. Dealers will know everything they need know about that shopper early in the process: who’s worth the effort – to which people they can actually sell. That’s powerful. This exercise in “thinking through” how the current sales and financing process works – and how it would necessarily change if the CFPB acted – shines some light on what would be needed in a post-reserve world. But it also illuminates how irrational the current process is. And how, at some very fundamental level, a post-reserve model would ultimately benefit dealers.
We need more honest discussions of where we really are with dealer financing. Not only where the CFPB could make us go, but what processes and technologies could make lenders and dealers much more efficient and profitable, no matter what the CFPB says. CBT
Founder and CEO of E-Lend Solutions
To see more from Pete MacInnis visit CBTNews.com
August CAR BIZ TODAY