This is the second post in our series about improving the auto lending customer experience. The premise of the series is that financing a new car shouldn’t be and doesn’t have to be painful. If you need a refresher, episode one is here.
“Income Verification” or “proof of income” is a common step for lenders in the auto financing process. Informed lenders can usually skip this step for borrowers. This is because they have reams of salary data from millions of documents and applicants, after years of proof-of-income stips.
Financing a Car Doesn’t have to start with a Painful Lending Process
Lenders access this salary data and pull a reliable salary estimate from a variety of employers, occupations, credit histories, and geographies. This rich employment data is enhanced with IRS, Department of Labor, US Bureau of Labor and Statistics data; Also from Informed’s proprietary contributory database of 30M+ documentary validations, removing the need to stipulate proof of income. In many cases, Informed returns a more reliable result, since there can be overtime pay, commissions or tips that aren’t reflected on a recent paystub.
In this case, a consumer we’ll call Audrey, is buying a car and needs financing. She states that her income is $133,000 per year working for ITC Holdings. Since she doesn’t have her paystub or required documentation, income verification is required. Audrey’s lender didn’t have the functionality to verify her income against the government’s database so the dealership’s F&I manager manually verified her income. Given the importance of dealer satisfaction scores to lenders, this was a perfect opportunity for the lender to make the life of the F&I manager easier with document and data collection and verification tools.
As it stood, the F&I manager couldn’t get paid for 10 days because proof of income was missing. The lender asked the F&I manager for paystubs from Audrey who had to fax them back. This is problematic for two reasons. First, the quality of the faxed image is often blurry or unreadable. Second, it’s time consuming. After 10 days of delays, the F&I manager finally faxed low-quality paystubs to the lender. The F&I manager and their customer (Audrey) actually provided more paystubs than were necessary.
And, Audrey made multiple trips back to the dealership bringing the documents to the F&I manager. Furthermore, after the F&I manager faxed Audrey’s income documents over to the lender, he waited several days for a call back from the lender to find out whether his fax cleared the stipulation. After several calls to different contacts the F&I manager was frustrated and the relationship between the dealer and lender suffered. The process took 25 days to straighten out with multiple contacts.
When it is necessary to collect documents to verify income, dealers simply don’t have the right tools to easily return clear copies of documents and data back to the lender. So the process grinds to a halt – on average 14 days for contracts in transit. But often it is closer to 30 days, with the buyer and dealer left in the dark and a delay in the dealer’s payment.
The Better Way
Lenders can enhance their callbacks at Underwriting with tools for clearing stipulations and facilitating re-hashing based on updated PTI/DTI. F&I managers simply instruct car buyers to text-to-upload the documents required to clear the required stipulations. Car buyers can link their bank accounts, connect to their payroll providers, or upload paystub and income documents.
Those documents are accessed by the dealer and analyzed per the lender’s policies and procedures giving the dealer confidence that the deal will fund. If the F&I manager already has the documents from the car buyer, he can send them to the lender and Informed instantly verifies the documents and shows what defects, if any, the lender identified.
Informed’s auto lenders see a 2x capture rate improvement by delivering better deal structures and more stip-free approvals. And their Dealer Satisfaction scores increase with a digital retailing solution – a trend that is more prevalent post the Covid-19 Pandemic as shown in this chart by JD Power. Informed’s Lenders are among those ranking highest in the 2022 US Dealer Financing Satisfaction Study from JD Power.
Lenders also benefit from:
- improved compliance (including with Policies & Procedures and Section 1033 of the Dodd Frank Act)
- reduced costs
- reduced potential for consent decrees by avoiding disparate impact
- reduced loss rates by avoiding fraud
- freed up staff to focus on higher-value functions.
You can contact us to learn more or request a demo. If you missed part one of the series, you can read it here: Making the Auto Lending Process Better One Deal at a Time.
Adine Deford is the VP of Marketing at Informed.IQ. She has more than 25 years of technology marketing experience serving industry leaders, world class marketing agencies and technology start-ups.