GDS Link, a global leader in credit-risk decisioning solutions, features Carleton’s General Counsel and Vice President of Compliance, Sarah Milovich, as a special guest on their podcast, The Lending Link. In this episode, their host Rich Alterman, sits down with Sarah to discuss the critical role of the Truth in Lending Act (TILA), compliant Annual Percentage Rate (APR) calculations, and other complexities and challenges lenders face in the consumer finance industry.

Sarah talks about her journey from corporate attorney to her current role, offering a behind-the-scenes look at Carleton’s long history of providing critical compliance solutions to major lending organizations. She then shares insight on the growing use of Artificial Intelligence (AI) in compliance along with providing some advice to any upcoming law school students!

Listen to the full episode now!

Apple Podcasts: https://apple.co/40f4yIK

Spotify: https://bit.ly/4h7JIkB

YouTube: https://bit.ly/3NBtkLw

About Carleton:

Carleton is the country’s leading provider of financial calculation software, loan origination compliance support, and document generation software. With over 55 years of experience, our ongoing expertise and industry knowledge reaffirms why Carleton is a trusted partner. Founded in conjunction with the Truth In Lending Act, Carleton provides expert compliance support with continuous accuracy in all our calculations and disclosures at a state and federal level.

About GDS Link: 

GDS Link is a global leader in credit-risk and decisioning solutions, boasting over 18 years of experience. Specializing in data aggregation, advanced analytics, and responsive decisioning, GDS Link’s comprehensive solutions currently deliver over a billion decisions annually, enhancing the customer journey and making a significant impact for clients across 46 countries. The company’s expertise is bolstered by strong strategic partnerships in financial services and technology, enhancing credit risk management and business growth.

About The Lending Link Podcast:

The Lending Link, powered by GDS Link, is a podcast hosted by Rich Alterman and designed for the modern-day lender. Each episode dives deep into innovation within the financial services industry and transformation efforts, including AI/ML integration, modeling, risk management tactics, and redefining customer experiences. GDS Link launched The Lending Link to explore unique strategies for the modern-day lender, dive into the innovative advancements GDS Link and their partners are currently developing and delivering, and gain insights from captivating guests within the fintech, banking, and credit union worlds. They feature a wide range of guests from various lending institutions and diverse organizations who share their strategies, technology insights, and everything in between.

Over the past decade, we’ve seen a rise in various flavors of “All-in” Annual Percentage Rate (“APR”) legislation. States are evolving in how they regulate interest. One notable piece of this evolution is the movement toward adopting rate caps tied to all-in APRs rather than a traditional charge based solely on interest rates. This shift is significant for both lenders and borrowers, bringing new opportunities and challenges to the consumer installment lending industry.

All-In APR vs. Traditional TILA APR: What’s the Difference?

To understand this trend, it’s essential to distinguish between the traditional APR, as defined by the Truth in Lending Act (“TILA”), and an all-in APR.

• Traditional TILA APR: This rate is a measure of the consumer’s cost of credit, expressed as a yearly rate based on the rules outlined in Appendix J to Regulation Z. This calculation takes into account the interest rate plus any additional fees that are considered finance charges under TILA.
• All-In APR: By contrast, this rate is intended to provide a more comprehensive assessment of the consumer’s cost of borrowing. However, states’ definitions of “all-in” vary and can encompass a variety of additional fees that are not considered finance charges under TILA. The most prevalent example of this is the inclusion of optional credit insurance.

Examples of States Where All-In APR Legislation Has Gained Traction

• South Dakota: In 2016, a ballot resolution implemented a 36% All-in APR for loans. The resolution sent shock waves throughout the industry due to the nature of the change.
• Illinois: The Illinois Predatory Loan Prevention Act, enacted in 2021, also set a 36% All-in APR cap on most consumer loans. This legislation tied the APR to the Military Lending Act’s calculation requirement and impacted retail sales and loans.
• New Mexico: Beginning January 1, 2023, New Mexico instituted an All-in APR of 36% for loans up to $10,000. The loans required the state APR calculation to include products in connection or concurrent with the extension of credit, and any credit insurance premium or fee.

All-In APR Caps: Concerns and Implications

The shift toward all-in APR caps raises several concerns for the consumer lending industry:

• Access to Credit: Lenders argue that strict all-in APR caps could reduce access to credit for consumers, particularly those with subprime credit scores, as lenders may find it unprofitable to offer loans under such stringent conditions and at the effectively lower rates.
• Operational Complexity: Calculating an all-in APR is more complex than determining a traditional TILA APR. This complexity could increase compliance costs for lenders and be particularly burdensome for smaller institutions, potentially leading to higher costs for consumers. In addition, there is confusion over which rates to display on the contract. The all-in APR does not replace the TILA APR, but this confusion remains among lenders and consumers alike.
• Statutory Ambiguity: Some statutory language includes vague language such as the inclusion of fees “in connection with or concurrent to” a loan agreement. Such language leads to uncertainty over whether items like late fees must be included in the all-in APR calculation. These fees, which are incurred after consummation of a loan, alter the fundamental concept of origination disclosures.

What Does the Future of All-In APR Caps Look Like?

As more states consider or implement all-in APR caps, it’s clear that the consumer lending landscape is changing. Lenders must stay informed about these developments and consider how they may need to adapt their business models to comply with new regulations quickly and compliantly.

For lenders and borrowers alike, the shift toward all-in APR caps marks a significant change to the industry. Staying ahead of these trends and understanding their implications is crucial for anyone involved in consumer lending.

In what seems like the blink of an eye, four years have passed and another Leap Year is upon us. One extra day to make up for the fact that it actually takes a little longer than 365 days for the Earth to orbit the Sun. In honor of both Groundhog’s Day and the mysterious Leap Day, we thought it would be worthwhile to recycle one of our “oldie but goodie” articles on the complications Leap Day poses on consumer loan calculations.

While most people consider February 29th to be a “free” day we get every four years, compliance officials and loan calculation software providers know that it can actually be more troublesome than most people would even realize. In the consumer lending industry, the various effects of Leap Day on loan origination, loan servicing systems, and the compliant implementation of proper loan software parameters are quietly downplayed. That shouldn’t be the case! As we at Carleton have stated before: simple interest quickly becomes quite complicated. For starters, during a Leap Year:

Top 3 Questions For The Consumer Lending Industry to Consider During a Leap Year

Question #1: Does interest accrue on the balance at 1/366 of the annual interest rate? Or 1/365?

Is it ‘fair’ for the creditor to get a lesser charge all year long when Leap Day only occurs in February? An illustration: a consumer loan or retail installment sales contract originated in December of a Leap Year involving simple interest at 1/366 daily rate will always receive less charge for that month than any identical transaction originated the following three years on the exact same date and time. That does not seem fair or just.

Question #2: Does a finance company or lender’s servicing system collect the actual interest agreed to by contract?

If a 1/365 annual interest rate is used to calculate daily charge, does the creditor intend to collect interest on February 29th or not? If the consumer lending organization does charge interest on Leap Day, does that align with their contractual disclosures? Frankly, these are questions that may even be too advanced—do all servicing systems even have the capability of accounting for Leap Day?

Question #3: If a payment is received and posted on Leap Day, is it recognized as 2/29/24?

For banks and institutions that ignore Leap Year altogether and have coded their loan origination and loan servicing software systems to do the same, what actually happens when a payment occurs on Leap Day? Seems like it would make posting a payment on February 29th very problematic. This may seem extreme, but should that bank even be OPEN on February 29th?

 

While this may seem like it’s all simply an academic exercise, for many lenders, Leap Year does indeed impact the nuts and bolts of calculating principal and interest. It is also critical that Leap Year is properly accounted for between front- and back-end systems to ensure compliance with state and federal regulations. Contact us today for an evaluation and learn how Carleton can handle your loan calculation needs.

Well, it is the Carleton Compliance Team’s favorite time of the year! Legislatures are back in full swing, and new bills have popped up potentially affecting consumer credit all over the country. Colorado, Connecticut, Indiana, Oklahoma, South Carolina (among others)—all have legislation that has been introduced or pre-filed which contain a new rate cap determining what lenders can charge for making small loans.

While we joke about new laws affecting the consumer credit industry, we recognize these laws have significant impacts on our industry. One point that rarely gets addressed when these types of new bills are debated is the ramifications for a lender of mistakenly tying a state’s rate caps to a Truth in Lending Act (“TILA”) Annual Percentage Rate (“APR”). In the rush to draft new rate caps or to interpret the legislation, key concepts quickly get overlooked. And basic consumer math criteria get conflated.

So, what does it mean when a state ties its lending laws to the Truth in Lending Act?

That’s right. It gets complicated! As we field more and more compliance-related questions, we are always a bit surprised that the “Maximum APR” viewpoint is still so prevalent in the consumer finance industry (“All-in” rate caps aside).

The fact is, most consumer lending statutes continue to regulate the dollar amount of the charge, whether it’s referred to as interest, finance charge, or time-price differential. The dollar charge is created by applying the published maximum rate to the outstanding balances of the transaction. How that rate is applied is key.

The Truth in Lending Act’s Actuarial Method was created to “level the playing field” when computing an APR for comparison sake. To achieve that goal, TILA proscribes the use of the Federal Calendar and disregards how a specific creditor actually computes dollar interest charges. How? By the use of a calendar which is periodic in nature–the Federal Calendar.

In contrast, in many cases, the state-prescribed calendar for determining the maximum charge differs from the one used to compute the TILA APR. In such an instance, the APR is not necessarily an accurate barometer of compliance with a state statutory provision or the maximum charge allowed.

Furthermore, in today’s context, you have to assess the effect of “simple interest”, which often corresponds to daily charge accrual. Many statutes are rather antiquated and originally constructed in a time when daily interest was not the norm. Rate caps may have been updated, but other code provisions written in a time where periodic calculations were the norm may have been left behind.

Another complicating factor is that by necessity, the TILA APR is generally disclosed as a two or three place decimal value. The rate has to fit in the “Fed Box”, which means it is a rounded value. Quite often the TILA APR, rounded for the purpose of display, can provide a false sense of compliance. Applying that rounded rate can, in certain conditions, produce an overcharge for specific loans using the state’s prescribed requirements.

So, is it possible for a transaction with a disclosed 21% TILA APR to also exceed a 21% statutory maximum rate applied on a daily basis and thus represent a potential violation?

Yes! The devil is in the details! In conclusion, be wary of new state laws that appear to be tied to an “APR” cap.

Fortunately, Carleton’s compliance team specializes in monitoring federal and state regulation changes across all 50 states.  With over 75 combined years of experience among our staff attorneys and compliance personnel, we help provide our clients that peace of mind knowing our solutions and services have compliance embedded.

To learn more about Carleton’s compliance services, click here or contact us directly.

*This article was updated from the original thought leadership blog “Maximum Finance Charges…It’s Not Just the Rate” 

I have always been intrigued by the mysterious “free” day that appears every Leap Year. Many questions come quickly to mind. For instance, how would one discover a year was not actually a full year in the first place? Or was there any pushback against Caesar’s changes to the calendar? (He was a dictator, so probably not much.) And, what possible advantages would having a birthday on Leap Year actually provide? Spoiler alert: nothing tangible.

As compliance officials and loan calculation software providers know, Leap Day isn’t a free day. In fact, it can be more troublesome than many would care to discover. In the consumer lending industry, the various effects of Leap Day on loan origination and loan servicing systems and the compliant implementation of proper loan software parameters are quietly downplayed. That shouldn’t be the case! As we at Carleton have stated before: simple interest quickly becomes quite complicated. For starters:

Does interest accrue on the balance at 1/366 of the annual interest rate? Or 1/365?

Is it ‘fair’ for the creditor to get a lesser charge all year long when Leap Day only occurs in February? An illustration: a consumer loan or retail installment sales contract originated in December of a Leap Year involving simple interest at 1/366 daily rate will always receive less charge than any identical transaction originated the following three years on the exact same date and time. That does not seem fair or just. Here is another:

Does a finance company or lender’s servicing system collect the actual interest agreed to by contract?

If a 1/365 annual interest rate is used to calculate the daily charge, does the creditor intend to collect interest on February 29^th or not? If the consumer lending organization does charge interest on Leap Day, does that align with their contractual disclosures? Frankly, these are questions that may even be too advanced—do all servicing systems even have the capability of accounting for Leap Day? Finally, one more:

If a payment is received and posted on Leap Day, is it recognized as 2/29/20?

For banks and institutions that ignore Leap Year altogether and have coded their loan origination and loan servicing software systems to do the same, what actually occurs on Leap Day? Seems like it would make posting a payment on February 29^th very problematic. This may seem tongue-in-cheek, but should that bank even be OPEN on February 29^th?

These are just a few of the types of questions that intrigue me now regarding our free day. My largest wonder is whether it’s all simply an academic exercise or does Leap Year indeed impact the nuts and bolts of principal and interest. Either way, there definitely are ramifications for having a year which is 365 days, 5 hours, 48 minutes, and 46 seconds long.

It is critical that leap year is properly accounted for and in alignment between front and back-end systems to ensure compliance with state and federal regulations. Contact us today for an evaluation and learn how Carleton can handle your compliance needs.

In Part 1 of this Thought Leadership series on simple interest, Carleton discussed how simple interest transactions have complicated previously held beliefs about consumer credit computations. While periodic interest calculations may closely align and appear identical to actuarial method APR computations, simple interest calculations do not always follow suit.

By measuring actual days elapsed and not simply counting a month as 1/12 of a year, simple interest added a layer of complexity to what was previously considered “easy” math.

Part 2 addresses another complication brought about by the use of simple interest—the fact that there can be multiple “right” payments.

Simple interest’s biggest impact can be seen when prospective interest charges accrue on the actual calendar days elapsed between scheduled payment dates. This is a departure from the historical “periodic” interest charges that accompanied precomputed transactions. For the purpose of interest accrual, periodic interest considers all months equal and interest accrues at 1/12 the stated annual interest rate. Periodic interest does not recognize that months have differing numbers of days.

Why is that important? Because merely looking at the stated interest rate leaves a skewed picture. The rate is merely one component of the process. The application of the rate to accrue interest is often the overlooked key parameter. Simply put, this is the reason we see such confusion in the credit industry when the contract interest rate and Truth in Lending Act (“TILA”) annual percentage rate (“APR”) are not the same value.

Click here to access the printable PDF of this publication

Key Considerations Regarding Simple Interest

1. There are different methods of accrual calendars and the month in which the loan originates
2. When accounting for a maximum charge on a loan, loan data must be evaluated when using applicable parameters identified in statutes

Urban Myths

Part 1 addressed the first urban myth that: “If there are no fees included in the finance charge, the interest rate and APR are the same.”

Urban Myth #2: There is only one “right” payment for a set of data

With simple interest, a set of data could potentially have a dozen different amortizing payments depending on the month in which it was originated. The amount of interest calculated on using a daily accrual method is dependent upon the month of origination and the number of days of interest which accrue early in the transaction. For that reason, the exact same set of data will accrue less interest on a deal beginning in February (28 days) than one that begins in March (31 days). If there are more days accruing interest at the beginning of a loan when the balances are at their highest, the entire profile of prospective interest accrual changes. So too does the comparison between the applied interest rate and the APR when utilizing a periodic calendar vs. a daily accrual calendar.

Carleton has seen at least 13 different payment accrual calendars, all utilizing different combinations of time counting, including for example: periodic or daily accrual, counting 365 days a year or 366 days a year on leap year, or counting whole months and days. Based on these different methods of accrual calendars and the month in which the loan originates, there can be varying effects on the applicable amortizing payment and interest calculations.

Urban Myth #3: A State’s maximum rate provision is simply a nominal rate comparison. The method of charge accrual is irrelevant

So how do regulators view the industry shift towards simple interest? Many jurisdictions’ statutes written in the 1970’s and 1980’s state that for the purposes of computing the maximum finance/credit service charge “the differences in the lengths of months are disregarded.” That would imply that a periodic calendar is to be used when determining if there is an overcharge.  The key point here is that a majority of state statutes regulate the dollar charge contracted for by the creditor.  So, the application of the published maximum rate becomes a crucial data point.

Even when a statute employs language that makes the maximum rate synonymous with the TILA Appendix J APR value, Appendix J allows a compliant APR to be computed by both the actuarial and U.S. Rule methods.  Often, the methods return identical results, but just as often they provide distinct APR values.  So, which one is “right”?

This notion can be illustrated when the consequences of applying a daily interest rate of 18% results in a TILA APR of 18.03% (which uses the periodic calendar). That means that if the differences in the lengths of months are disregarded, the effective interest rate is 18.03%. But when a daily calendar is used, the effective interest rate is 18%. Using the effective interest rate of 18.03% technically results in a violation of the maximum charge provisions in the statute. This violation is a result of a daily calendar used to accrue interest charges and another mandated to assess the result. If an actuarial method APR is disclosed, the APR box itself may be evidence of an overcharge.

Of course, a creditor can compute and disclose an APR by the United States Rule method and employ daily charge accrual. In that situation, the interest method and APR method are identical resulting in an APR which will match the interest rate.

One practical consideration that needs to be made by disclosing parties is that nearly every examiner in the United States carries a free download of the OCC’s APRWIN Software Program on their laptop. APRWIN is a credible tool, but it only computes by the actuarial method APR and cannot validate a U.S. Rule value. A creditor needs to be able to strongly justify and prove their APR disclosures at every examination—it’s a fact that most don’t have the proper tools to do so.

One final operational effect of the movement from the precomputed environment is the difficulty of porting a TILA APR into a servicing system to accrue actual interest earnings and service the loan. One of the main features of a precomputed contract is that the consumer is agreeing to repay a total of payments and that is synonymous with the rate found in the APR. When the APR and contract interest rate were interchangeable—during the era of precomputed contracts—the practice of porting an APR into the service system was widespread. Now, when utilizing daily simple interest the resulting APR for an 18% contract interest rate may be anywhere from 17.97% to 18.04%.

Thus, when accounting for a maximum charge on a loan, the loan data must be evaluated when using the applicable parameters identified in the statute.

Keeping it Simple: Resources for Compliance

Carleton’s products and services are synonymous with consumer credit calculation compliance since 1969. Priority is given to maintain its position as the industry’s leading authority with respect to loan calculation accuracy.

Carleton clients receive compliance support from Carleton’s Compliance team in three critical areas: constant monitoring for change in regulations through state and federal databases, continual testing and implementation of new quality control methods to ensure software calculation accuracy, and litigation support providing backup in any client legal support needs, including:

• State & Federal Law Database – Carleton’s Compliance Department maintains a regulatory library and constantly monitors changes in state and federal regulations related to loan calculations. Carleton is also able to remain at the forefront of breaking legislative developments through a myriad of subscription services related to lending, professional legal relationships, active participation on law committees of national lending associations, and the compliance departments of many of the major lenders who are clients of Carleton.
• Verification of Calculations – Our Compliance Department is involved in designing programs to test the accuracy of all Carleton calculations and ensures that an updated quality control program is in place to support the changes in regulatory compliance for all state and federal regulations.
• Litigation Support – As part of Carleton’s maintenance and customer support, the Compliance Department is available as a resource to assist clients in providing the basis of the computations and validation of the calculation accuracy in the event a state or federal examination results in a requirement to defend or explain our company’s loan computations.

Carleton, Inc. also provides a range of Compliance Support Services, including:

• TILA Reimbursement & Adjustment Calculations
• Recasting of loans
• Creating amortization Schedules to “prove” a lending transaction
• Examination support through providing dollar and cent illustrations
• Analysis of client’s internal system calculation requirements

Carleton, Inc. is the leading provider of compliant lending and leasing calculation software and dynamic document generation software serving the banking, credit union, and auto lending industry.  Founded on compliance expertise at a federal and state level in 1969, the company’s client list has grown to include most of the major lenders, credit insurance companies, and loan origination software providers in the United States.

Jean-Baptiste Alphonse Kerr famously wrote, “plus ça change, plus c’est la même chose” — the more things change, the more they stay the same.  This statement is applicable in many situations, but in our world if you attend any consumer finance conference, you can count on at least one or frequently more of the general sessions primarily dedicated to discussing FinTech, Marketplace Lending, Online lending or whatever moniker you may want to describe the emerging trend of extending credit without having a brick and mortar physical presence.

Regardless of the medium or vehicle for the transference of data, there is one essential property to every credit transaction that never changes, “the numbers.”  The numbers are the essential property that forms credit disclosures and serves as the fundamental ingredients of the contractual obligation between a lender and borrower.  The “calculations” are the common denominator inherent in every single credit transaction across all types of lending and all credit markets.

The incredibly complex and esoteric nature of the consumer credit math that produces the disclosure numbers is often an enigma to the participants of FinTech lending.  FinTech principle players generally have strong IT backgrounds and access to investors willing to provide funding, but, more often than not, lack the consumer finance calculation background and experience.  The common mantra for consumer lending calculations is that they are “just math”.  However, that “math” is the crucial element for whether those ever present disclosure numbers will be deemed in or out of compliance by auditors and examiners.

The regulatory landscape for FinTech at the moment is anything but clear when you consider the results of litigation putting the “Bank Partnership Model” in jeopardy due to the Madden v. Midland ruling.

Until the valid when made doctrine is either expressly upheld or rejected, the regulatory framework for FinTech sits in limbo to a great extent and the only completely safe model appears to be that of becoming a licensed lender in the individual states in which business is transacted.  With an internet-based lending model, that most likely means a license in all 50 states.

Regardless of the lending model framework, FinTech or traditional Brick and Mortar segment of the market, Carleton’s core experience and expertise is in supplying the compliant credit math component no matter how complex or simplistic the requirement.  In today’s industry, with the cacophony of ever increasing regulatory requirements, why take on the burden of creating and maintaining The Common Denominator… The Math…

At Carleton, we spend a lot of time and focus on helping our partner lenders stay compliant in the area of the maximum state finance charge that is allowed by a statute or regulation.  Consistent with our expertise, once we drill down to the granular detail, the compliant calculations are not always what they seem.

Regarding the financial term usury, in our opinion usury is not always the most technically correct term for statutory maximum charges, it is however the financial term used most frequently in the industry.  The usury calculation focus by most lenders is almost always on the rate itself.  We have frequent discussions that usury is not merely the rate itself but the application of that published maximum rate that is integral to being compliant.

The passage of HB 1511 in Mississippi recently is a perfect example.  The new Consumer Alternative Installment Loan Act prescribes a maximum rate of 59%.  There is also a provision making an allowance for a daily interest accrual calendar, aka 365/365, that recognizes the current trend toward “simple interest” interest-bearing loans and away from traditional pre-computed transactions.

However, like other provisions in the Mississippi Code, it is clear that the maximum 59% will be measured by the “actuarial method”.  Since that label is defined in the small loan regulations as holding the same meaning as in Regulation Z that implements the Federal Truth in Lending Act, which means the 59% will be a TILA APR type number.  The actuarial method requires the “Federal Calendar,” which is a monthly accrual calendar and recognizes each month as 1/12 of a year.

The effect is what we see frequently in today’s consumer finance industry.  Applying a nominal contract rate on a daily basis yields a different value when it is measured on a monthly basis.  In the case of the Mississippi bill, applying a 59% contract rate using a 365/365 calendar can yield an actuarial method APR as high as 59.18%.

That means lenders will have to reduce their in-going contract rate in order not to violate the 59% maximum provision.  That fact is not evident unless you live in the “weeds” of the consumer finance mathematics as we do at Carleton.  In most states, it is the state “finance charge” as a dollar amount that is regulated and not merely the published nominal rate.  That is one reason “table lookup” is not always a safe and efficient method of testing for compliance.

Carleton announces the July release of the latest CarletonCalcs® Origination module to support the changes identified in the 2015 amendment of the Military Lending Act (MLA) effective October 3, 2016. Previously, the regulation was limited to payday, vehicle title, and refund anticipation loans, but as of October 3, 2016 will affect nearly all lenders extending credit to active military personnel.   The purchase of motor vehicles and 1^st lien purchase mortgages have been excluded.

Credit insurance and fees for debt cancellation or debt suspension fees are included in the calculation of the MAPR in accordance with the John Warner National Defense Act in 2007.  The major change from the DOD to the new regulation is that “bona fide” fees may now be excluded from the MAPR.  The Act defines interest for the purposes of complying to include:

• Application fees* (new requirement)
• Points, origination fees, participation fees – all fees in the TILA finance charge
• Single premium credit insurance premiums
• Single amount debt protection charges/fees (cancellation and suspension)
• Any credit-related ancillary product sold in conjunction with the transaction

The Military APR cannot exceed 36%.

Carleton has added the ability to the CarletonCalcs® Origination module to customize which fees will be included or excluded to allow lenders to customize which fee will affect the MAPR to meet their individual needs.

If you have any questions regarding this release and how Carleton can help you stay compliant with the MLA, contact your Carleton sales or support representatives at (800)433-0090.

An industry trend of the steadily increasing pace of regulation and the resulting volume of requirements is placing a great deal of pressure on an already stressed “creditor” compliance management systems.  Since the Consumer Financial Protection Bureau does not have direct jurisdiction over auto dealers, the CFPB have aggressively pursued and scrutinized indirect auto lenders and creditors in a number of calculational and compliance capacities.

This increased scrutiny on the indirect lending institutions intensifies the need for ensuring that assigned portfolios of motor vehicle sales transactions are “squeaky clean” from a compliant calculational and disclosure perspective.  This presents a unique challenge for many creditors that inherit/purchase bulk transactions that have been originated on a wide spectrum of systems with varying degrees of complexity and sophistication.  As a result, at Carleton, we have noticed that many major purchasing decisions for bulk portfolio purchases have in part depended on the “cleanliness” of the loans.

As the indirect lending industry itself adapts to meet consumer needs, the industry has drifted from the traditional equal payment “regular” transactions to more “exotic” transactional features being offered.  Consequently, the validation of the accuracy of the Truth in Lending Act APR disclosures, as well as state-specific usury maximums for many lending institutions for bulk purchases, is a very complicated, tedious, and manual process.  Validating one, no problem.  Validating thousands of loans is a different dynamic altogether.

At Carleton, we have the ability to take electronic data from a proposed bulk portfolio purchase and streamline the validation process.  No, every detail and potential risk factor cannot be easily identified and vetted. However, a creditor can confidently move forward with a portfolio purchase with less anxiety, having assurance that the potential portfolio purchase of bulk loans has accurate TILA APR disclosures with none exceeding the state-specific usury cap.

Bottom line…Making a compliant buying decision has never been easier with a little help from Carleton.