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(From Credit Union Journal) – Despite living in a digital world, more than half of states still use paper to track auto liens.
This creates numerous headaches for lenders, including credit unions, such as increasing costs and the potential for fraud. Because of that, credit unions are hoping more states switch to online systems for car titles and liens.
“Consumer expectations have risen dramatically because of companies like Amazon making transactions easier, faster and accessible online and states are responding to that consumer demand,” Kait Gavin, vice president and general manager of collateral management services at DealerTrack, said via email. “As well, more states are engaging in the modernization of their DMV systems making the development of [electronic lien and title programs] easier. Lenders, who have always understood the significant value the ELT brings, also play a role by encouraging states to implement this secure, efficient process for electronically managing and releasing titles.”
So far 24 states, including California, Florida, Massachusetts, New York and Texas, have established electronic lien and title (ELT) programs, according to DealerTrack, a company that provides digital products to the automotive retail industry. That means 26 states still require this to be done through traditional paperwork.
New Jersey is one state that still relies on paper for auto liens. Under this current system, credit unions are overwhelmed with paperwork when they have to register a lien at the local Motor Vehicle Commission office, said John Dawidowski, CEO of the $116 million-asset Healthcare Employees Federal Credit Union of Princeton, N.J.
The lack of an electronic filing system not only increases cost to lenders who have to cope with a cumbersome paper trail, Dawidowski said, but also negatively impacts the public. For instance, mailing out titles to borrowers who have successfully paid off the loan presents the risk of titles being lost in the mail or stolen from a mailbox, Dawidowski added.
“Paper titles must be stored in fireproof cabinets,” Dawidowski said. “A staff person has to physically go to the DMV to have titles properly handled for liens.”
Establishing an ELT, Dawidowski said, would reduce costs to credit union for storage and tracking of paperwork and eliminate the need for staff to drive to the Motor Vehicle Commission office.
David Frankil, president of the New Jersey Credit Union League, said his group conducted a cost-accounting analysis that concluded that credit unions in the Garden State would, on the average, save $13 per auto title in paperwork and processing costs alone if ELT were implemented. That means, if a credit union did 1,000 auto loans per year, the annual savings would amount to $13,000.
These figures do not include savings from preventing fraud and other errors, which can be more prevalent with a paper system, Frankil added. Once that’s factored in, a credit union that does 1,000 auto loans a year could save between $28,000 to $73,000 per year.
Frankil cited a case from the summer of 2017, when five people in New Jersey were indicted on money laundering, identity theft and other charges related to a scheme where they financed car purchases and then re-sold the vehicles after fraudulently removing liens.
“They then allegedly forged letters purporting to be from the lender stating that the loan had been satisfied and used those letters to get clear titles from the New Jersey Motor Vehicle Commission,” he said. “The vehicles were subsequently [sold] to innocent consumers for cash.”
This scheme lasted for four years and involved at least 25 vehicles worth over $500,000. Implementation of ELT would have prevented this fraud, Frankil said.
However, implementing an ELT system in New Jersey has stalled. During his last days in office in January 2018, former New Jersey Gov. Chris Christie signed legislation that required the state’s Motor Vehicles Commission to complete a study within 60 days to determine whether it had the resources to establish and implement ELT within one year.
If the commission determined it did not have the capacity, it would be required to contract with a vendor to establish and implement the system. But little has been done since then.
Frankil noted that MVC has stated that it has been occupied by other matters, including meeting requirement of the TSA Real ID requirements for New Jersey drivers licenses.
“We are now nearly 16 months past the study deadline and past the deadline for when ELT was supposed to be up and running,” Frankil said. “The Motor Vehicle Commission has not met its obligations under the law.”
The New Jersey MVC did not return a request for comment.
Some states may also require legislative approval before making the switch.
“It is hard to believe that with all the technology at our disposal, we still require lenders in New Jersey to physically drive to a Motor Vehicle Commission center and stand in line to register titles and place liens,” Frankil said.
This story is the first in an ongoing series on credit union auto lending. Look for more coverage throughout the month of May.