Automated Digital Workflows for Auto Loan Servicing

Leor Melamedov

Auto loan servicing is sensitive business. On the one hand, auto lenders are inundated with requests from borrowers to defer and modify the terms of their loan, and must process such requests quickly. On the other hand, strict compliance regulations require auto lenders to document all loan modification approvals before they are implemented.

This tension between the necessity to quickly approve servicing requests and the necessity to carefully document them can be resolved by automating workflows. With automated digital workflows, auto lenders can ensure that loan modifications are done immediately and correctly with no compliance gaps or rework. The entire servicing cycle, from the initial phone call to form filling to final approval, can be triggered and completed in a streamlined and transparent way.

In this article, we’ll show why silos are so detrimental for auto loan servicing, the benefits of adopting automated digital workflows, and the potential use cases for auto finance servicing.

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The Dangers of Silos in Loan Servicing

In a perfect world, a borrower would take out an auto loan, set up automatic repayments (ACH), and everything would be repaid regularly until the conclusion of their loan term. Unfortunately, this is not our world. For any number of reasons, customers may need to change their loan terms, and the challenge for auto lenders is to streamline this process.

All too frequently, however, different parts of the servicing process don’t communicate well, resulting in silos. For example, a customer that falls behind on auto payments may receive a call from a representative who allows them to defer their loan under certain conditions. Yet if this change isn’t properly documented, someone from the collections department who is unaware of the modification may take steps to repossess their vehicle. Such missteps due to siloed communication and broken workflows carry a heavy price. They can be uncovered — and penalized — during audits, or result in customer complaints to the Consumer Financial Protection Bureau (CFPB).

The most commonly used automation tools do not address the underlying issues that lead to these outcomes. For example, auto lenders occasionally employ tools like robotic process automation (RPA), which automates tasks such as adjusting payment terms, requesting documents from customers, and implementing late charges (or conversely, waiving fees). While these tools succeed in automating individual aspects of the servicing cycle, they fail to eliminate the silos in the full workflow. So while the individual task, such as a customer deferment request, is automated and fulfilled, the next step isn’t automatically triggered.

Here are just some of the KPIs that are negatively impacted by silos and broken workflows in auto lending:

  • Completed loan modifications: Friction in the loan modification process means that fewer customers will successfully change the terms of their auto loan. This leads to costly, time-consuming, and unpleasant scenarios, such as collections and repossession, to kick in.
  • Turnaround time: Representatives spend an excessive amount of time chasing borrowers for supporting documents and signatures due to disjointed processes.
  • NPS: Net Promoter Score, a measurement of customer satisfaction, suffers due to the stressful and choppy servicing process. In some extreme cases, this may even lead to complaints to the CFPB.
  • eNPS: Employee Net Promoter Score matters too. Collections agents often bear the brunt of customer anger and avoidance due to misunderstandings in the terms of loan modifications. This can lead to burnout and loss of morale.
  • Compliance: Lack of documented modifications can be uncovered during the audit process, leading to hefty penalties.

Automated Digital Workflows: Benefits for Auto Loan Servicing

Servicing departments are tasked with emotionally laden and stressful tasks. Dealing with delinquencies, loan modifications, forbearance, and the ever-looming last resort of collections is inherently challenging from both a personal and compliance standpoint. But gaps in communication and documentation between departments needlessly exacerbate these challenges.

Automated digital workflows can alleviate many of the difficulties seen in servicing lifecycles. These solutions allow auto lenders to set up automated payments, quickly document and implement loan modifications, and collect information from customers without chasing. They prevent the kinds of misunderstandings that can lead to severe compliance risks.

At the same time, auto lenders should not have to depend on their IT departments each time they want to make changes to their servicing processes. Frontline managers who have a finger on the pulse of the customers’ needs and regulatory environment need the ability to make changes on the fly. A no- or low-code automated digital workflow can ensure auto lenders have the most agile and up-to-date processes in place. By switching to such a solution, servicing departments can expect to see some of the following benefits:

  • More intuitive processes: A single system controls the entire end-to-end process with a simple drag-and-drop interface.
  • Digital tools in one digital suite: At various stages of the workflow, rules trigger the sending of requests for eSignatures, eForms, document collection, digital payments, and ID verification.
  • More streamlined processes: Easy and intuitive conditional rules can be set to ensure business logic between steps, within steps, and within form fields.
  • Optimized: Each customer interaction can be optimized across touchpoints and existing systems.
  • More visibility: Digital workflows come with dashboards that allow business leaders to gain visibility into the KPIs that matter most, such as increasing ACH usage, increasing the completion rate of loan modifications, and avoiding repossession of the vehicle.
  • Zero IT involvement: Managers can adjust their business rules according to their needs without requiring IT support or coding.

Common Servicing Use Cases Leveraging Digital Workflows

As we’ve seen, automated digital workflows ensure auto lenders’ servicing processes reflect the latest compliance and business requirements.

The biggest use cases for digital workflows can be found in setting up new terms for loan modifications and signing borrowers up for ACH. These are two areas that demand representatives to quickly get borrowers on a new plan and accurately document these changes for other departments.

Loan Modifications

Before: Auto lenders’ systems fail to quickly update new loan modification approvals, resulting in lags and confusion. Borrowers often don’t know exactly their new loan terms start. Collections departments aren’t looped into the loan modifications and may start pursuing a repossession. Silos, confusion, and frustration are common.

After: Delinquencies or nonpayments are quickly turned into modified loan terms, which are documented and instantly updated in the system for all departments to see.

Digital workflows are designed to maximize compliance and minimize siloes. A typical loan modification process using automated workflows can look like this:

  1. The representative calls the delinquent customer and informs them of their nonpayment status.
  2. The representative and customer decide on a repayment plan.
  3. Based on the customer’s state of residency, the representative sends out requests for documentation and associated legal clauses.
  4. Based on the information received, the representative either sends modified terms that require a signature or escalate the case to a secondary business center and compliance.

Here are some examples of conditional logic triggers auto lenders may want to employ for loan modifications:

[From California y/n, add waiver x to signature]

If: Loan is delinquent
If: State or residency is x
Then: Request y documents for loan modification
Then: Request signature
Then: Integrate into back office
Then: forward to compliance office

Implementing ACH

Before: Borrowers who encounter financial difficulties fall behind on their auto loan payments, leading servicing departments to chase customers for payments.

After: Borrowers are encouraged to sign up for ACH, increasing the likelihood of regular payments even during times of financial difficulty.

Digital workflows can be set up to trigger ACH signup at two key points in the customer lifecycle: Immediately after the loan is approved, and when delinquency becomes apparent. The advantage of signing new borrowers up for ACH right away is that it proactively prevents late payments. But auto lenders can also benefit from getting delinquent borrowers onto an ACH program, preventing escalation to collections or repossession.

A typical ACH process at the beginning of the customer lifecycle using automated workflows can look like this:

  1. The customer’s loan application is approved.
  2. The representative offers an ACH payment plan, in some cases in exchange for improved loan terms.
  3. The ACH payment plan is implemented.

For customers who didn’t sign up for ACH at the beginning of their loan term, but are falling behind on their payments, a process can look like this:

  1. A representative calls the customer to inform them of their delinquency and offers them easier loan terms in exchange for signing up for ACH.
  2. If the customer accepts the offer, no further action is needed as payments are automatically deducted under the new terms each month.

Here are some examples of conditional logic triggers auto lenders may want to employ for ACH:

If: Loan is delinquent
If: Customer wants lower monthly payments/longer loan term/deferred payments
Then: ACH is offered
Then: A digital ACH authorization form is sent for the customer to fill out and return on the spot
Then: Signed documentation are sent to storage and compliance
Then: New terms are set in underlying system
Then: New notifications and tracking are set in underlying systems

Digital Workflows for Efficient and Compliant Auto Loan Servicing

Perhaps the greatest advantage of automated digital workflows is that servicing departments can adapt them to their exact needs. This flexibility means that customer interactions with the auto lender are instantly tailored to each borrower’s unique circumstances.

Customers are asked to provide only the information that is needed from them, no more and no less. Automated workflows keep the ball rolling between critical steps, ensuring more delinquent or struggling customers can start automatically repaying their loans under the modified terms.

Lightico offers such a workflow automation solution that uses conditional logic to streamline end-to-end customer interactions in auto finance. The platform includes eSignatures, smart eForms, digital document collection, and instant ID verification. Learn more at Lightico.com.

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