Dealer Insights - March/April 2014 - E-contracts Could Soon Hit Critical Mass

Published: Feb 25, 2014
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In a world in which almost everything has gone electronic, vehicle finance contracts have curiously lagged behind. But the adoption of electronic vehicle finance contracts — or “e-contracts,” which have been around since the mid-1990s — might reach critical mass in the near future.

E-contract initiatives

Two large automobile finance companies have joined other captive finance companies in expanding e-contracts for vehicle financing over the past couple of years. Ford Motor Credit Co. rolled them out nationwide in 2012, while Toyota Financial Services did the same last year. Few dispute the benefits of e-contracts, which include:

Speedier processing. The e-contracting process is faster than the paper contracting process, so you receive funds sooner, which boosts your cash flow. It can take from 10 to 20 days for a paper contract to move through the application, approval and funding process. But an e-contract can be submitted and approved the same day.

Greater accuracy. With e-contracts, customer data has to be entered only once and can then be used to populate multiple fields, which reduces data entry errors. All the contract information is verified automatically, so customers don’t have to come back into the dealership to fix errors.

Electronic verification. The finance company is able to review the e-contract’s final terms (amount financed, supporting calculations and other details) before the customer signs to make sure everything is right. The customer can then sign using an electronic signature pad, enabling the process to move forward quickly.

Improved record storage. E-contracts, approved credit applications and all supplemental documents can be linked in a digital sales contract folder and stored in a document archiving system. This significantly reduces the amount of paper that has to be stored on your premises, thus reducing your record retention costs.

Higher customer satisfaction. Most customers are familiar and comfortable with this type of technology, which they use in other areas of their lives. They welcome it at the car dealership, because it streamlines the finance application process.

Barriers to widespread adoption

A number of factors have hampered widespread adoption of e-contracts. Lenders have been hesitant to switch from their old paper-based systems until more dealerships express a willingness to change, while dealerships have held back until more lenders are on board. In addition, dealers have been reluctant to absorb the costs involved in developing new processes for e-contracts and integrating them with their computer systems.

Also, there’s a perception among some auto buyers that their personal information is less safe in an electronic format than it is on paper. To ensure the highest level of security for your customers’ personal information, NADA recommends that you adopt reliable and scalable e-vaulting of all digital copies of documents required for the deal jacket.

This electronic document storage system must comply with Regulation B of the federal Equal Credit Opportunity Act’s records retention requirements, as well as any additional state-specific or lender-imposed retention requirements, according to NADA.

Is the tide turning?

E-contracts may offer big benefits to your dealership and its customers, and the industry tide may finally be turning in this direction. If your dealership moves to adopt e-contracts, though, be sure you follow industry best practices to safeguard the security of your customers’ personal information.

Dealer Insights - March/April 2014