Demystifying Auto Ancillary Product Contracts

At Informed, we know auto lending. Six of the top ten US auto lenders use our service in their lending process and we’ve learned quite a bit from that experience. On the technology front, we have multiple patents and received two provisional patents in 2022.

With AI and Machine Learning, we perform validation checks on documents including: contracts, title applications, odometer statements, GAP contracts, bookout sheets, etc., at speeds beyond human capabilities. By enabling these validations earlier in the process –  at underwriting, auto dealers have more confidence that they will be paid immediately rather than dealing with a contract-in-transit.

Automating Ancillary Product Contract Verifications

Auto dealers submit over 50,000 types of contracts, each needing verification. Ally Financial publishes a public list with tens of thousands of ancillary product contracts it accepts from dealers. This list is hundreds of pages long. Informed is the only company who automates these contracts out-of-the-box, using pre-trained models.

Contracts in Transit

There are many reasons that a deal  gets stuck in transit. A dealer and a lender can be overwhelmed. It is not humanly possible to track all of these documents. The most common  reason for failure in onboarding loans with ancillary products is multiple defects in a deal jacket. Informed automatically identifies all defects within a loan package instead of manually one at a time, allowing lenders to prioritize and queue documents by priority.

The most common single defect is mileage that doesn’t match the Vehicle Service Contract (VSC). We know this from the real-time data. Imagine seeing by dealer, what after-market forms most often fail. This data empowers dealer relationship managers (DRMs) to request actionable changes from dealers to improve the overall organization, data that historically wasn’t available to DRMs.

Example of Insights on the frequency of contract fail reasons
Example of Vehicle Service Contract Mismatch
Example of Informed’s Interface immediately identifying a defect of Vehicle Service Contract

Manually reviewing different documents, doing a stare and compare, then reviewing manual funding checklists is time-consuming and requires a highly trained staff. Informed allows for less training, quicker ramp time for associates, and straight-through processing when no defects are found. 

Example of manual communication between funder and dealer with a timestamp of 1/11/2022 1:41 pm, four days after submission

Delayed communication kills relationships

Informed’s AI is pre-trained to catch all of these critical defects within seconds of contract receipt.

We know of an OCC-regulated bank that waited an entire month before responding to its dealer letting them know why their contract had defects, resulting in a contract being held.  In a recent blog, “How Lenders Can Maintain Compliance For The Auditors, the Fed, and CFPB in 2023  we discussed how, “Non-compliance with audit standards and requirements can be highly detrimental to an organization. […] Some standards require public disclosure of violations and incidents. Such disclosures can result in severe reputational harm and public impact.”

And, how lenders can navigate the fines and direct expenses related to noncompliance. The waterfall of indirect costs is decreased satisfaction amongst dealers and consumers, resulting in the highest of costs. Car buying is a “relationship driven” experience. This is true even with digital forward strategies – the personalized experience is essential.

The above-mentioned bank now uses Informed’s AI insights to communicate in real-time with its dealers, increasing responsiveness and reducing context switches. This results in higher deal capture. The measured result: 22% reduction in agent costs, 25% reduction in contracts-in-transit, and 80% reduction in held offerings.

Ancillary Products are Profitable

Data on ancillary product sales (the highest profit center for car dealerships) is largely opaque. Informed creates transparency and raises awareness of the products sold, at what price points, and which defects are identified. The nation’s largest lenders use Informed’s turn-key AI. The AI is trained on 45 million records across various employment types and paystub formats.

Credit Unions are the Fastest Growing Auto Lending Segment

Through a 15,000+ dealer network, Informed’s technology complements one of our partners (Origence) technology. Together, we provide credit unions a way to streamline indirect loan processing. We speed loan funding and provide dealers with a fast, convenient way to upload missing documents. On any given day, we review hundreds of stipulation types.

The image above shows, in one day with one lender, all the different types of stipulations being automated

As Featured in American Banker

X