Deciphering Aftermarket Products: Leverage AI to better understand your deal jackets

Deciphering Aftermarket Products Leverage AI to better understand your deal jackets Informed

In auto finance, retail installment sales contracts (RISCs) outline the terms and conditions agreed between credit applicant, auto dealer, and lender. A crucial part of this contract is the section, “Itemization of Amount Financed.”  Furthermore, this is where the contract displays the details: sales price, taxes or fees, and any aftermarket products (VPPs) the borrower has bought. And, it includes the gap waiver, vehicle service contract, maintenance plan, and appearance protection plans. So today, we’re focusing on these aftermarket products. Here’s an example from a real auto loan listing out several aftermarket products.

Deciphering Aftermarket Products Leverage AI to better understand your deal jackets Informed

This example shows what products were tacked on, but not all of them. In many cases the words are very hard to decipher, and in some cases they pose complications. You might wonder why care? As we dive into this post, we’ll highlight challenges that exist, especially when automating workflows. 

Also, you might wonder “Why do I care about this?” Well, here’s why: lenders must ensure the aftermarket product’s price is correctly itemized, as they are financing the contract. Picture this… If the listed price is higher than the actual price, loan funding “hits a red light. ” It’s a compliance hiccup that blurs borrower transparency and potentially upsets the whole deal structure.

Problem 1: Can You Identify That Premium?

One common issue with RISCs is that the itemized amounts often lack specific details regarding the products being sold. The descriptions alongside the dollar amounts are vague, poorly presented, or even blank. To overcome this challenge, we leverage AI algorithms trained to associate line item dollar amounts with the relevant product documents in the deal jacket. See examples below. Can you tell what product is being sold to the car buyer?

Deciphering Aftermarket Products Leverage AI to better understand your deal jackets Informed
Deciphering Aftermarket Products Leverage AI to better understand your deal jackets Informed
Deciphering Aftermarket Products Leverage AI to better understand your deal jackets Informed

And regardless of how the line item description appears on the contract, our intelligent system takes a deep dive into the contract text. From there, it gleans information from the corresponding document and learns from historical deal jacket trends. This enables automated verifications, ensuring that the product sales price lines up with the itemized product. 

Problem 2: Detecting Deal Packing

Another issue that can arise in auto RISCs is deal packing. This is an illegal practice where dealerships slip aftermarket products into the sales price without itemizing. And, keep in mind these products are optional. Adding them inflates costs and misrepresents the true purchase price. 

To combat deal packing, we detect aftermarket product documents in the deal jacket. If the system identifies a product document without a corresponding RISC line item, it raises a red flag for further investigation. While the absence of a premium amount indicates potential deal packing, we conduct all necessary verifications and stipulations. Also, we highlight discrepancies or potential legal issues. And, we identify deal packing on both Paper deals and eContracts.

Benefits and Impact:

  1. Improved Contract Clarity: We accurately associate itemized products with corresponding product documents which eliminates ambiguity and improves clarity. Traditionally, loan officers reviewed all documents and matched ambiguous premiums with the separate product documents in the deal jacket. 
  2. Time and Cost Savings: AI Automation streamlines validating premiums, reducing manual effort and saving valuable time and resources.
  3. Enhanced Compliance: The system detects deal packing, reducing risk of illegal practices and ensuring compliance with auto finance regulations.

In conclusion, verifying auto finance funding requirements is a challenging task. And it’s further complicated when deciphering aftermarket product details and detecting potential deal packing. However, with Informed’s innovative AI-powered software, these challenges can be addressed. Contact us today to learn more!

author avatar
Peyton Brooks and Jatin Agrawal Product Manager, Product Lead
Peyton is a Product Manager at Informed.IQ who leads our dealer document automation product. Prior to his time at Informed, he worked at American Express on the Commercial Credit Risk Strategy Team. Jatin Agrawal is a product lead at Informed.IQ. With over five years of experience in Deep Learning and a background at AI startups and Microsoft, he is committed to improving auto lending with innovative AI products. His work is published in numerous publications.

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