Like many sectors, the automobile lending industry has put the pedal to the metal on digitization ― creating new and innovative ways for consumers to discover, select and finance vehicle purchases. While the fast-track to document digitization is a welcome process for buyers who have come to expect a seamless digital experience across the board, the shift to digital lending has created new challenges for lenders.
Although some organizations have used cloud-storage services to store routine digital files, these offerings are not designed to handle digitized loan documents' regulatory, compliance, and security requirements. To keep their loan processes secure and compliant, auto financiers must consider investing in a digital loan platform that is purpose-built for digital lending.
The foundation of digitized lending, a purpose-built solution, provides auto lenders with a roadmap to optimize their digitization strategy. In addition to satisfying compliance and security requirements, leveraging a purpose-built digital lending solution enables every stakeholder in the loan process to benefit from document digitization.
Consider three ways the power of a purpose-built solution helps put auto lenders in the driver’s seat:
1. It satisfies the legal and regulatory compliance requirements of digitized lending
Although some financial institutions have turned to the cloud to oversee ever-increasing volumes of data better ― saving work documents in popular offerings such as Box™, Dropbox™ and Microsoft OneDrive® ― these services fall short when managing digitized loan documents. This is because they are not intended to meet digitized loans' regulatory and legal requirements.
Various regulatory bodies, from the Federal Reserve to the Small Business Administration, specify rules for storing loan documents. For example, cloud storage fails to meet the UCC 9-105 Safe Harbor criteria, which mandates an authoritative copy, assignee identification, and copy identification. These requirements can only be accomplished through a digital solution designed to support the end-to-end loan process.
Despite their ability to allow users to share documents with version control, generic cloud-based storage services also do not provide for auditability or capture the ancillary data needed to maintain a negotiable and enforceable financial instrument. Auto lenders must be able to demonstrate that loan documents were created with the consent of both parties, that they were not altered without a record of that alteration, and that they are auditable throughout their lifecycle.
Furthermore, key pieces of legislation – such as the Uniform Commercial Code section 9-105 (UCC 9-105), the Uniform Electronic Transactions Act (UETA), and the Electronic Signatures in Global and National Commerce Act (ESIGN) – establish rules for recognizing electronic records on an equal basis with paper records. For digitized loans to be enforceable and negotiable, they must comply with these laws ― requisites that are attainable through a purpose-built solution.
2. It overcomes security shortcomings of generic cloud-storage offerings
While virtually all cloud-storage services rely on data-encryption technology ― and some feature supplemental security measures ―these services remain open to security vulnerabilities.
Loan documents must not only be encrypted but also tamper-sealed.
This ensures that all actions against the document have been digitally recorded and no changes made between when the document was signed and potentially sold. For example, suppose auto loan assets are sold into the secondary market. In that case, you must demonstrate that a loan document that claims to represent a vehicle valued at $50,000 does so.
3. It enables you to achieve digital asset certainty
Digital asset certainty is a concept that assures that your digital loans are compliant and meet all legal requirements and industry best practices. The backbone for maintaining an auditable, tamper-proof digital chain of custody for loans, digital asset certainty guarantees that the asset is the authentic, authoritative copy. It also provides the legal standing to demonstrate that your loans comply with all applicable laws.
When an original digital loan moves through the lending ecosystem, an immutable, evidentiary ownership trail must be captured. Each participant’s involvement serves as a record of the loan’s history. This is especially important for auto lenders who do not intend to hold the loans they originate. When loans are packaged and securitized, a purpose-built platform enables you to manage the process from end to end while ensuring digital asset certainty.
Even with an aggregation of thousands of auto loans, digital asset certainty provides financial institutions with an auditable chain of control and custody and the ability to furnish a “digital original” document – a single, authoritative copy with all the legal rights of a paper contract.
A purpose-built digital lending solution helps auto lenders steer clear of the vulnerabilities inherent in generic cloud-storage offerings, including unacceptable risk, noncompliant process steps, and unsatisfactory customer experiences. By providing lenders with the assurances of digital asset certainty, regulatory compliance, and security through every phase of the loan lifecycle, a purpose-built solution provides the capabilities that enable secure and compliant digitized loans while facilitating a customer experience that will help lenders differentiate themselves in the marketplace and grow their business.
Find out how the right partner can put you on the road to a purpose-built digital lending solution.
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