Transparency. Education. Information. Repeat.
Unless you’ve been living under a rock, it’s pretty clear that the Consumer Financial Protection Bureau expects consumers to receive these things from their financial service providers. Earlier this month, the CFPB once again demonstrated this when publishing a report on its “Know Before you Owe” electronic closing (eClosing) project that it recently conducted in the mortgage industry.
What’s this got to do with auto finance and the buy-here, pay-here industry? Read on.
The project, which took place over a four-month period, involved a combination of technology companies, real estate professionals and 3,000 consumers, of which 1,200 completed surveys about their experience in mortgage closings. The results indicate that “those consumers who closed their mortgage using an electronic platform are generally better off on measures of understanding, efficiency, and feeling empowered than borrowers who used just paper forms.”
The CFPB focused on three areas: consumer understanding, process efficiency and feeling of consumer empowerment. In each area, the study found that eClosings improved the customer experience.
“While technology alone will not address all consumer concerns in the closing process, our study showed that eClosings do offer the potential to make the process less complex,” CFPB director Richard Cordray said. “The CFPB believes that the eClosing process has the potential to give consumers more time to review closing documents while also providing them with educational tools that can help them navigate the closing process more successfully”, concluded the report.
It’s obvious that the CFPB will continue to expand upon the adoption of eClosings in the mortgage industry. In fact, the “Know Before You Owe” mortgage disclosure rule, which goes into effect in October, will require that consumers be provided with two new informational forms well before closing.
This presents the question of whether auto finance will be faced with a similar initiative, since director Cordray has stated that auto loans and leases are among the most complex and significant transactions in a consumer’s life.
The worlds of auto finance and mortgage lending are very different.
For one, the underwriting requirements of mortgage lenders prevent immediate closings. Also, it is virtually impossible for a consumer to read at closing the voluminous number of the closing documents a consumer is required to sign, thus the bureau’s mandate for delivery of information prior to closing.
However, they are both similar in that they represent significant financial commitments by the consumer. Therefore, we can expect that the CFPB will apply pressure for both industries to treat its consumers similarly and look for the best ways to educate and inform them so that they can make responsible choices.
While electronic contracting has been used in auto finance for several years and creates an efficient process, it doesn’t address the other two areas that the CFPB focused on in the mortgage study — consumer understanding and empowerment — which are natural by-products of transparency, education and information.
While a more efficient process is nice, dealers need to realize that the CFPB really wants the industry to take steps to provide more and better information to its customers.
Fortunately, the auto finance industry already has tools at its disposal. Menu selling, which standardizes the after-market product offerings of a dealer, has become more widespread in recent years. Also, many dealers have their customers view videos that provide valuable information about products and services to the consumer.
SecureClose — disclaimer here is that I helped to develop it — is a product that provides consumers with a standardized presentation of the terms and conditions of the contracts, allows them to navigate through the documents at their own pace, and actually records the consumer’s participation in the closing. Reynolds and Reynolds DocuPad and Dealertrack’s eContracting product offer similar educational benefits.
The goal of these and any similar products are to educate the consumer and, therefore, empower them, which creates a better customer experience and, hopefully, a better customer.
A dealer not looking to use these tools still has to be proactive and search out opportunities to inform and educate its customers and build a more transparent process. Study the closing process and find ways to include more information so your customers are educated.
Are there product brochures or materials that can increase a customer’s knowledge? If so, don’t just leave them out around the dealership; instead, make them a part of the presentation.
If multiple after-market products are offered at your dealership, create your own menu and be sure to include standardized pricing.
Take advantage of the FTC pamphlets that educate consumers on car buying and financing. Every dealer should offer them to its customers.
Transparency. Education. Information. If you’re doing business like it’s 2010 then you aren’t adopting industry best practices and you aren’t accomplishing these goals. Change, improve and aim to be better than the rest.
Steve Levine is the chief legal and compliance officer of SecureClose. He can be reached at (817) 875-0621 or [email protected]