LAS VEGAS - With the rest of the world moving at Internet speed, the credit-application process is largely stuck in the 1980s. But that is beginning to change.
'Auto lending practices are behind the times from a technical standpoint,' said Floyd Robinson, president of Bank of America Auto Group.
'At least now, it might not be the 2000s, but we're stepping into the '90s, instead of the '80s,' he said in an interview at the National Automobile Dealers Association convention in Las Vegas on Feb. 3.
After years of slow growth, use of the Internet is starting to take off. A tipping point came when big lenders abandoned the notion that each needed a unique system, said Norman Buchan, president of Chase Manhattan Auto Finance Corp.
Chase, which buys around $1 billion in auto loans and leases a month, spent several years in the early to mid-1990s developing an automated credit-application system.
But dealers would not use the system because it favored Chase and because it required a significant investment for hardware, so Chase eventually killed it, Buchan said.
'That's the price of cutting edge,' he said.
'What are dealers looking for? They are not looking for a proprietary solution. If I make you put three different terminals on your desk, what have I done for the customer? We were smart enough to figure out that we have got to provide this service from a multilender model.'
DealerTrack is born
Chase parent J.P. Morgan Chase & Co., Wells Fargo & Co. and subprime lender AmeriCredit Corp. have formed DealerTrack, an Internet-based joint venture that will accept and administer online credit applications.
With DealerTrack, Chase has come full circle. Instead of trying to exclude other lenders, Buchan said he hopes that DealerTrack will grow to include virtually all lenders, like the big networks of automated teller machines that allow customers to get cash all over the country.
'The point is, it's meaningless to say you want to keep other lenders out. You're competing with all the other lenders anyway, whether it's on the Internet or not. I hope this (joint venture) reaches a point where lenders can't afford not to be included,' Buchan said.
Executives for several other lenders, including Bank One Corp., Bank of America and Primus Financial Services, said they are interested in the concept.
Greater use of online applications also makes it easier and faster for lenders to use automated decision making, where a computer decides whether to make a loan based on the customer's credit bureau score and other variables.
Citing the results of a yearlong pilot program, Craig Stokum, DealerTrack director of sales and product development, said the system should boost automated decision making by up to 20 percent. For a highly automated bank, that could mean an increase from 50 percent to 70 percent.
Subprime lending is labor-intensive
Faster means cheaper and more efficient. But today, most applications still arrive from the dealership by fax. Provided the application is legible and filled out correctly, someone has to enter the data into the lender's computer system.
Once that is done, except for extremely high or extremely low scores, another person has to review the application to decide whether to approve the loan.
If errors crop up in the paperwork, which they often do, or if the lender makes the customer a counteroffer, the application is tossed back and forth again. Subprime lending is even more labor-intensive since every part of every credit application, including the customer's job and residence, needs to be rigorously verified.
Dealers want a decision while the customer is sitting at the F&I manager's desk. But 30 minutes is the benchmark for getting credit approved the 1980s way.
'If we get an online application, the system doesn't allow you to submit it unless it's filled out correctly, and the data entry person doesn't have to take a fax and enter the data,' said Dick Schliesmann, Wells Fargo executive vice president.
'You've saved 20 minutes right there.'