ELT and the Impact of Electronic Initiatives on Lender Vehicle Title Practices
Seventy percent of vehicles registered in the United States are subject to some type of electronic lien. That’s a surprising number, and one that many experts think will grow steadily thanks to the ever-increasing trend to toward electronic processes. For example, today there are 18 states using Electronic Lien and Titling (ELT), eight of which have made the process mandatory. An additional five states are active but pending mandatory ELT status; additionally, Michigan and Utah are expected to enable ELT next year. Another four states are actively considering ELT initiatives: Illinois, Alabama, New Jersey, and Minnesota.
The reason for the movement toward ELT lies in the effectiveness of the process:
- ELT allows the DMV and a lienholder or financial institution to eliminate the printing of a vehicle title and instead use electronic notification that a title record exists.
- At payoff, it electronically transmits release information to the state.
- A third-party service provider then facilitates the data exchange between the lienholder and the state, while providing software that allows the lienholder to manage title information.
The result is an electronic process that can save the lienholder time and money in operating costs by introducing greater automation, reducing the number of touch points involved, and removing the cost of paper title storage. In addition, ELT can lower the risk of fraud and improve processing times and customer satisfaction by reducing delays in title perfection and lien release.
End-to-end Electronic Processing and Odometer Disclosure Requirements
While ELT is one of the foundational programs for electronic processing of motor vehicle records, end-to-end electronic processing initiatives are also expanding, led by a recent National Transportation Highway Safety Administration (NTHSA) notice of proposed rulemaking on Odometer Disclosure Requirements. The rule attempts to allow electronic odometer disclosures while maintaining and protecting the existing systems that ensure accurate odometer disclosures and aid law enforcement in prosecuting odometer fraud. Historically, an odometer disclosure was a barrier to an all-electronic/paperless title due to the federal requirement that odometer disclosures contain a written signature by buyer and seller.
If a final rule is adopted, states would be able to create their own electronic odometer program, provided their internal statutes are aligned with the new federal law. If implemented properly and with foresight, a system to facilitate an electronic odometer statement has the potential to usher in a new era of paperless processing of motor vehicle records and documents. Indeed, several states have begun pursuing an electronic odometer disclosure system, including Texas, Arizona, New York, and Iowa. Benefits from the new electronic odometer disclosure would include:
- Faster purchase transactions: Lenders, dealers, auctions and distributors will have fewer ‘wet’ signatures and paper documents to process.
- Increased document accuracy: Electronic documents can incorporate field validation, reducing the possibility for inaccurate or missing information, ensuring less processing delays.
- Reduce record retention cost: Industry participants will be able to meet federal record-retention requirements for odometer disclosures and other information electronically versus paying for record storage maintenance.
- Lower risk of fraud: Depending on the technical and security specifications the NHTSA adopts, electronic documents and systems can make it more difficult to alter or create fake documents.
- Faster lien releases and fewer titles to maintain: As states move to ELT or e-titling systems, lienholders will have fewer paper titles to retain and an increased ability to release liens electronically.
- Expansion of disclosure requirements to older vehicles: The proposed rule attempts to expand disclosure requirements from vehicles that are 10 years old to vehicles that are twenty five years old or less.
While the states’ move towards automated electronic processes won’t be without challenges, in the end electronic initiatives will help result in reduced costs, improved lien placement and enhanced customer service.
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