E-Lien Titling Requirements Slowly Roll Out Throughout Country, Potentially Saving Lenders Costs
PHILADELPHIA — Just as many other components of the auto industry and vehicle finance world have moved to the online space, the process of lien titling has become more and more electronic as technology advances.
And this paperless route for lien titling can be a good thing for the industry, both in terms of saving money and protecting the environment, according to Larry Highbloom, president and founder of VINtek.
Highbloom, who recently talked with SubPrime Auto Finance News about the evolution and benefits of electronic lien titling, said the best way to understand ELT is to think about stock certificates.
Not too long ago, he noted, any time someone bought or sold a stock, they received a paper certificate. These days, the stock-trading process is almost entirely electronic, virtually eliminating the need for paper certificates.
The same can be said for lien titling, which has become more and more paperless.
"In its best format, ELT is an automated ‘batch' process involving the sending and receiving of electronic messages between the state DMV and a lender (via their ELT service provider)," Highbloom explained.
"Through the establishment of unattended data-file exchange processes, the DMV sends electronic lien notifications to VINtek on behalf of a lender when the DMV processes title work representing the lender as the lienholder," he continued.
"VINtek holds the electronic liens for its lender clients," Highbloom added. "This process is completed automatically without the need for a lienholder to ‘ask' for its title.
Before electronic titling was available, the state DMVs would have to print a paper copy of the title with a lien notification and then mail it to whoever held the lien, he shared.
The lienholder would then hold the title in their possession until the loan was paid and then mail it back to whoever was responsible for the payments.
"Under ELT, no paper is mailed by the DMV or received and safeguarded by the lienholder. No one releases a lien manually and no postage is incurred to mail the title upon loan pay-off," Highbloom noted. "Lienholders avoid the receipt, handling and shipping of paper.
VINtek, in particular, provides its lienholder customers with either an online or internal vehicle title-tracking system to automatically process ELT and paper titles.
"The benefits to lienholders are reduction in work effort, lower cost, no storage requirements, no postage and better customer service by avoiding lost titles since ELT cannot by lost," he added.
"Much like e-mail has replaced written letters, ELT is eliminating paper titles," he continued. "The average cost for tracking, handling and storing a title can range from $8 to $12. Using ELT can bring this figure down to about $2 per title."
Other benefits to the auto finance industry include:
—Lenders who pay off other lenders receive titles faster.
—Lenders who are remarketing repossessed vehicles have fewer lost title issues.
—Overall transaction costs are reduced, a benefit to lenders and consumer borrowers.
—Dealers receive titles faster from lenders during payoff of vehicles received in trade.
Offering a bit of history of the process, Highbloom explained that ELT was first introduced in California during the late 1980s. The first rollout of the program didn't go as planned, he noted, but a revised version later became successful in the state.
By the late 1990s, Virginia, Massachusetts and Pennsylvania followed California in launching ELT programs.
"ELT gained traction in the mid-2000s as several states became operable and others planned their launches," Highbloom stated.
In the last four years, Arizona, Georgia, Ohio and South Carolina have implemented ELT programs. Currently, there are 13 states with automated programs, plus Kansas, which has a Web-based ELT system.
"Each state DMV operates differently and an industry has arisen that ‘standardizes' the different DMV approaches to ELT," Highbloom explained.
"Private industry fills the role of interpreting the different states' ELT processes and combining them into a ‘funnel' that provides a standardized interface for the lender community," he added.
States that are moving toward an ELT system include Connecticut, Maine, New Hampshire, Texas and Utah.
According to Highbloom, bringing such a system into a state's DMV may require legislation authorizing the program and then the actual design and development of the actual ELT process.
There also must be marketing efforts about ELT to lenders, consumers and dealers when a state decides to switch to the paperless system.
"Adequate advanced planning, discussion, idea sharing, documentation and communication by the DMV with the various trading partners are keys to a successful ELT program," Highbloom suggested.
"A state DMV may seek an ELT provider to help with the introduction of ELT," he continued. "This step was done by Pennsylvania. VINtek was pleased to receive the contract to act as the sole communication gateway for the state for the first five years of the program."
Pennsylvania was also the first of any state to pass an "ELT mandate" bill requiring all lenders to go paperless, Highbloom stated. The legislation became effective in July 2008.
"There are two distinct trends taking shape in the industry relative to ELT. The first is more states are rolling out ELT programs," Highbloom shared. "The second is states that already have operable ELT programs are passing legislation mandating all lenders go electronic."
Other states have considered implementing similar measures to make ELT mandatory, including Massachusetts, which is currently reviewing legislations sponsored by the Massachusetts Auto Dealer Association, he added.
Moving on, Highbloom also indicated that almost every automaker's captive finance arm utilizes ELT, as do the top commercial U.S. banks and approximately 600-800 credit unions.
Not to mention, the states that offer ELT represent approximately 58 percent of the total number of vehicles registered in the U.S.
"This figure indicates that a majority of financed titles in the country can be issued electronically with just the current states that are operable," Highbloom shared.
For the most part, he noted, lenders have embraced ELT because its cost-savings and process-improvement benefits.
That said, any time there is a change from a paper-based way of doing business to an electronic process, there are also likely to be cultural and operational shifts as well.
"Some lenders are more adaptable to change than others. Forward-thinking lenders embraced ELT immediately as a ‘no-brainer' solution to lower operating costs and increase lien perfection rates," Highbloom suggested.
"One adjustment that must be made is to become comfortable accepting paperless title data as evidence of a lien, as opposed to having possession of a paper title in a vault," he added. "Once the lender's staff makes this adjustment, the benefits of ELT are easily seen and achieved."
What's more, Highbloom indicated that the process of lenders transferring to a completely electronic program isn't difficult and be tailored to a lender's size, as well.
"We offer programs that address lenders of all sizes. Our program is a ‘pay as you go' with minimal transaction charges associated with the receipt of titles," he pointed out.
"No software must be developed or installed by lenders. The technology is available over the Internet through industry standard browsers," Highbloom continued. "The learning curve is short since most people are comfortable with electronic communication, such as e-mail."