Credit Union Management Via Acquire Media NewsEdge) Scanning loan documents isn't enough.
The Federal Reserve released data on Oct. 5, 2012, indicating that consumer credit among credit unions grew nearly $30 billion during the month of August. That's $8.7 billion in revolving credit and $20.4 billion in non-revolving credit. Based on Cornerstone Advisors' experience working with CUs across the United States, I would guess that at least that many pieces of paper were printed and handled in dealing with the loans associated with that volume of credit.
A lot of attention is being given today to green initiatives, compliance, and the need for member and loan growth. While paperless lending may not be the panacea for achieving loan growth goals, its benefits can certainly improve member experience, cost control, and compliance with regulations and internal policies. The technology to support paperless lending has matured to the point of being user- and operationally friendly, but CUs are still awash in paper.
Why is that In two words: disjointed processes. Paperless lending requires combining an information management strategy with software and processes. Just scanning paper doesn't really get anywhere close. Paperless lending, truly paperless lending, can only be achieved when every component of the process chain is thought of in terms of the following: * What is the information value provided by the paper documents * How can paperless documents be leveraged to achieve the same results as paper * Where can paperless documents enhance the process Let's walk through the process. For this discussion, I will use a real personal example.
Step 1 - Electronic Solicitations There can't be a paperless loan until there is a willing borrower. A loan application begins one of two ways. Either a member (or non-member) decides on his own that he wants or needs a loan, or the CU provides an offer that stimulates action. In my case, I received an e-mail from my CU [$287 million Charlotte Metro Credit Union (www.cmcu.org) in Charlotte, N.C.] promoting 1.99 percent car loans. (Charlotte Metro CU gets big points right out of the gate for not sending me a direct mail piece that costs nearly a dollar to print/mail and goes straight into the rubbish bin!) Before receiving the email, I paid off an auto loan with Charlotte Metro CU in February when that vehicle was traded in for a different one and I chose financing from the dealer/Wells Fargo.
Now, I don't know Charlotte Metro CU's internal systems, but because I did receive an email vs. a snail mail solicitation, I choose to believe the CU took the following best practice, paperless steps to identify and solicit me: * When my loan was active at the CU, the CU was diligent via online banking in verifying that a good email address was on my member record.
* When my Charlotte Metro CU loan was paid off in February, it tagged me as a dealer payoff to retain the knowledge that I probably still had a car loan.
* When the CU determined it needed to grow auto loans, it mined its data and found me as a former Charlotte Metro CU car loan customer and likely to still have a car loan.
* The CU checked my credit score to make sure I qualified.
* The CU emailed me the offer with instructions on how to apply online.
This type of data analysis requires a solid information management strategy, and it is easy to see/measure the payback. Targeted rifle shots like this have much higher success than shotguns blasting out offers to everyone.
Step 2 - Online Applications Already being a member with an online identity made it super easy for me to apply. All I really had to do was click the link, sign on, enter some information about the car and my desired term, verify that my personal information was still correct, and click the "Submit" button.
But don't be fooled here. Just because members can enter applications online doesn't mean the process stays paperless and efficient. Often this type of activity generates an email to a middle office area that has to re-enter all the application data into the loan origination system. From a best practices perspective, Step 1 would have already loaded me into the LOS as a pre-qualification. My online activities would simply complete that pre-qual and move my application through to underwriting and onto Step 4 (below).
Step 3 - Processing Since this is no longer 2006, 1 was asked to provide proof of income along with proof of insurance. This is one area in which most credit unions still struggle. There was no secure portal tied to my application that I could use to upload my documents. Email, fax, snail mail, or hand delivery were my options, each of which has its own shortcomings.
* Hand-delivery and snail mail inject paper into the process and are inconvenient and slow.
* Fax requires me to print or have some software on my laptop from which to send.
* Emailing PDFs in the clear over the Internet is not member-comforting. I could have encrypted my paystub PDFs with a password but I knew the potential issues that would cause. If I sent the password to my loan officer, he would need to share it with others. In addition to password sharing issues within the CU, if the document were to be useful in the longterm image archive, it would likely require someone in the CU to print and scan. We never, ever, ever want to print something just to scan it. Ever.
Some of the LOS vendors are finally getting on board with this and putting robust document management capabilities into the online loan application, capabilities that go well beyond "attachments." The best practice here is for the request for documents to be matched one to one with the submission of documents during the application process itself. This is really critical, whether we are talking car loans, real estate loans, or any other kind of loan.
To be ultra-efficient and paperless, the LOS would know what the documentation requirements are for a car loan refinance and create the placeholders. The application will be sitting in a processing "hold" queue waiting for the two placeholders, in this case two recent paystubs, to be populated. I would have preferred to use a secure portal to upload the documents into the placeholders. A benefit is that my efforts and the LOS s "intelligence" would do the work of classifying and indexing the documents. Of course the LOS will not know whether I uploaded paystubs or owner's manuals, but when the processor views it, he or she will determine if the document satisfies the criteria.
It is worth repeating that this processing step has the most potential to reduce turnaround time, ensure compliance with policies and regulations, and get us to truly paperless lending. The foundational activities to making this happen are a well-defined document classification scheme so every required document has a unique bucket; an LOS that can implement this classification scheme as an electronic checklist; and a document portal that allows members to upload documents into the classification scheme.
In the end, I emailed my PDFs. I thought I was being helpful by giving my PDFs meaningful file names, but maybe not. Still, wCUs shouldn't count on members to make their processes efficient. The LOS should do it.
An LOS also has the ability to juice loan growth by identifying other lending opportunities. When I received the email indicating I was approved and asking me when I wanted to close, I was also asked if I wanted a credit card. My CU said I could pick it up when I came to the branch to close the loan because it does instant issue. I was intrigued- but not to the point of wanting to go to the branch if I didn't absolutely have to. Unfortunately, Charlotte Metro CU could not send the documents via the Web for electronic signing.
Step 4 - Electronic Closings It also seems that North Carolina's Division of Motor Vehicles does not accept electronically signed title applications. Until state and local governments "get with the times," electronic closings will be on a case-by-case basis.
Mortgage and car loans would benefit greatly from the acceptance of electronically signed documents. We often hear that it is "not legal," when in reality there is plenty of federal law, including the -SIGN ACT of June 2000, that says it is legal.
Electronic closings are facilitated by software integrated with the LOS. A few notable vendors are CUES Supplier member IMM (www.immonline.com), Linden, N.J.; DocuSign (www.docusign.com), Seattle; and eOriginal (www.eoriginal.com), Baltimore.
If the closing package includes documents created outside of the LOS (such as in Word), there will be two processes. Be sure to justify the need for these additional documents and create them in the LOS if they are a must.
The closing package with electronic signature placeholders is pushed by the LOS to the electronic signing software portal. The member gets an email indicating she has documents to sign. A best practice would be to have the member authenticate herself by logging on through online banking, and have that log-in integrate with the document signing portal authentication.
After authentication, the signing software walks the member through the closing package and processes her agreement to "sign." When the member is finished, the "signed" documents are pushed back to the CU. The LOS will be notified, and the funding/booking process is initiated.
The electronically signed documents, plus other transaction documents like paystubs, should be automatically stored in the longterm archive.
Bottom line, tools exist to have highperforming, paperless lending. There are plenty of prerequisites to getting it done right, and far fewer excuses for not getting it done.
Resources Read related articles at aimanagement org/archive. Search for "paperless." You may be interested in upcoming CUES schools about product and channel management, growth and profitability, consumer lending, real estate lending and business lending. Learn more at cues, org/schools.
Michael Croal is a senior director with Cornerstone Advisors (www.crnrstone.com), a CUES Supplier member and strategic provider based in Scottsdale, Ariz.
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