The Pros and Cons of Loan Automation

 Choose the right tools to make the loan process seamless for members.

June 1, 2012

Loan automation systems have saved credit union staff countless hours when compared with the manual loan tasks of the past.

And the tools used to automate lending processes are constantly evolving and improving. It’s critical, CEOs say, to thoroughly evaluate each upgrade and new automation decision. Carefully consider the benefits, challenges, and potential drawbacks of lending automation.

Retain the human touch

“Lending automation allows us to do more with less,” says James L. Boyd, president/CEO of $240 million asset Abilene (Texas) Teachers Federal Credit Union. “But it’s more important for us to keep members happy through continually building personal relationships.

“We aren’t on the ‘bleeding edge’ of automation,” he adds, “Instead, we like to pick and choose through available options to find the best fit. We’re continually reviewing methods to automate our lending process, but not at the expense of losing personal contact with our members.”

The credit union’s loan portfolio has grown during the past five years—unsecured loans increased 25%; new-vehicle loans, 21%; and used-vehicle loans, 52%. Members have options: They can initiate the loan application process online, by phone to the loan call center, or face-to-face with a loan officer at the credit union.

“Integrated media management helps us handle our loan documents, even down to the use of electronic signatures,” he says. “A vast majority of our lending is open-ended, which greatly speeds up the process and makes our members (and employees) happy.”

While Abilene Teachers Federal automates much of the process, all loan decisions are still made by humans. Boyd says his credit union is old-fashioned when it comes to members.

 “Many members still want personal contact,” he explains. “We try to offer that with all our products. But my concern is, with so much automation, we could lose hands-on ethos, and that defines our service.” 

NEXT: Eliminate irregularities

Eliminate irregularities

Technology is the key to servicing large numbers of loans at as low a cost as possible, says John Cassidy, president/CEO of $627 million asset Sierra Central Credit Union, Yuba City, Calif.

“No more manual posting and updating are necessary. Monthly statements are easily prepared and sent, and the various notices required over the life of a loan are generated on a largely automated basis.”

Loan automation has “eliminated the irregularities caused by human decision making and has allowed for more consistent and predictable underwriting results,” he says. Loan automation also has improved the overall quality of the credit union’s portfolio, and it’s now easier to identify problems as they arise.

The interface of the credit union’s core system and its loan automation system provide information about delinquent loans “at the speed of light,” says Cassidy. “Our collectors don’t have to jump back and forth between two systems to figure out loan status or read notes. The system queues the work and allows them to focus on member calls.”

When the credit union works with the Freddie Mac and Fannie Mae automated underwriting systems, it receives immediate loan approvals from the agencies, with clearly defined stipulations and requirements. “If we meet those requirements, we know our loans will be purchased without delay,” he explains.

Loan automation can also be a marketing tool. “Automation allows the credit union to mine member data in the loan origination process to cross-sell other products to members,” says Cassidy.

New technologies require extra training and additional costs. Those are the primary drawbacks, he says. “You have to factor in the cost of implementing a new automation system beyond the purchase price. There will also be the time and expense of installing, testing, and training…and the rapid changes in the consumer market, technology, and regulations.

“All of these things,” he adds, “can cause us to upgrade systems at inconvenient times or cause an application to become obsolete within a few years after it was acquired.”

How do you know if a particular loan automation tool is right for your credit union? “Automation only works if your staff is willing to embrace it,” says Cassidy. “We have a scheduled project meeting once a month where we track progress and discuss new technology options to be considered, purchased, and scheduled.”

When staff fully understand the value of automation, they pay it forward: Members get the personal attention they deserve—quickly and efficiently, he says.

NEXT: Improve loan efficiency 

Improve loan efficiency

Two years ago, in an effort to promote a streamlined, “paperless” environment, $78 million asset AAC Credit Union, Grand Rapids, Mich., began investigating digital signatures as part of its loan automation process.

“We have five branches, including the main location,” explains Brian Turmell, president/CEO. “And we were constantly sending loan files back and forth between locations. Occasionally, the laborious process resulted in misplacing a paper file. We looked for a solution that would decrease the hassles of printing, signing, faxing, and mailing multi-page loan applications.”

Last October, AAC rolled out a new document management program that allows members to electronically and securely sign loan transactions.

“Each time we use the program it costs us about $3.50,” says Turmell.

The credit union is using electronic signatures for vehicle and signature loans, but not real estate loans.

The program had a significant learning curve for staff, but AAC hasn’t used it long enough to discern a down side, says Turmell. Several success stories have surfaced. Not long ago, AAC was able to save an auto loan from dealership financing by using the eDocs technology.

“We had a member who was preapproved who contacted us while he was auto shopping and planning to finance through the dealer,” says Turmell. “Since the member was already preapproved, we were able to offer on-the-spot credit union financing by emailing the loan documents to his smartphone. We made the member happy and retained the loan.”