To fill the potholes in crumbling budgets, some states are continuing to look for ways to cut expenses.
For at least 16 states, removing paper from the lien implementation process is one way that departments of motor vehicles might potentially save operational costs. One solution gaining steam is an electronic lien and titling system, which digitizes the automotive title process. Instead of a state’s DMV mailing a paper title to a credit union or other financial institution to hold in their vault, an electronic lien or notice is stored.
ELT continues to expand across the United States and 2011 could see more states setting up the digital networks, said Larry Highbloom, president of VINtek, a Philadelphia-based provider of automotive collateral management services and direct auto finance solutions for banks, credit unions and other auto finance institutions.
So far, Arizona, California, Florida, Georgia, Hawaii, Idaho, Louisiana, Massachusetts, Nebraska, New York, Ohio, Pennsylvania, South Carolina, Texas, Virginia and Washington are processing ELTs, Highbloom said. At least 60% of all titles are issued from these states, he noted.
"What this means is as you’re looking at auto lending, ELT has now replaced paper as the dominant and preferred way to issue liens to lienholders," Highbloom said.
While many credit unions and other lien holders could soon be forced to implement an ELT program as an increasing number of states mandate the use of electronic titles to cut costs for departments of motor vehicles, Highbloom is convinced that the system has a number of benefits to offer. VINtek provides an ELT solution that transferred a portion of CitiFinancial Auto’s portfolio. Through a collateral tracking system, the company was able to transfer 1.4 million consumer titles and loan file records within 90 days, according to Highbloom.
One of ELT’s benefits is the potential reduction in lost titles, Highbloom said. Rather than storing them in a vault, a credit union can locate a title electronically and have it ready for a member once the car loan is paid off. Another benefit is eliminating some of the expenses that may be needed to handle and process paper titles, he added. A CU staffer may have to take a large batch of titles, look them up in a loan system and then match the two. ELT allows for an automated matching process based on the vehicle identification number.
"It eliminates a lot of paper shuffling. The cost to handle titles drops 70% for credit unions. If you’re a big credit union, that’s a very significant cost saved. If you’re a little credit union, you can free up staff to do something rather than chasing paper."
For some ELT users, stopping fraud may be another advantage, Highbloom said. There are a growing number of instances where perpetrators will go to a financial institution’s website, take a picture of its logo, somehow get ahold of a person’s VIN and send a no-interest letter to the car owner. That letter indicates that there is no longer a lien interest from the lien holder. The perpetrator will then take the letter to the DMV, pay a fee and get a title without a lien. Or, the fake no- interest letter is taken to a title loan store to get a loan against the vehicle. ELT may eliminate these scams because the only way to release a lien is by the credit union sending a transaction directly to the DMV.
Texas has seen its fair share of these bogus transactions, Highbloom said. The state is now looking at legislation that would require all lien holders to move to ELT. Arizona, California, Louisiana and Pennsylvania may be following suit. States with huge financial deficits like California see ELT as a major money saver, he offered. Ironically, ELT got its start in the late 1980s in California. In November 2010, Nebraska stopped issuing paper titles, which in essence forced lien holders to join its ELT network.
Still, critics of ELT have voiced their dissension, Highbloom said. Some are against being forced to move to a new system.
"I believe they’re not objecting to the merits of ELT but just the notion of ‘Oh no, here’s another regulation I have to deal with,’" Highbloom said. More than 400 credit unions are now using ELT, according to VINtek.