Credit Application 101

Last week I went out for drinks with a friend, and she shared with me her recent car buying experience. My friend has a sales job, with commission, but is also a top seller of a popular pyramid scheme product. She shared this with the salesman because she needed assistance with how to report her income. The salesman asked her the total amount and instructed her to put the total amount on the salary line of the credit application. I gasped, as I thought to myself, the salesman committed bank fraud. 

A compliant credit application process is a pivotal part of the job.

We in the car business know the credit application is the legal tool banks rely on when making their credit decisions. It is imperative this document is completed by the consumer with accurate information. Banks concentrate on the five key credit determinants when making the decision to extend credit. In a future article, I will cover the details surrounding these key determinants, but for now let’s concentrate on a sound policy for completing and submitting credit applications.

Who Completes the Source Credit Application?

Whether handwritten, completed electronically via the dealership’s website, or the like, the source credit application information should come directly from the consumer. This credit application requires accurate representations from the consumer. The consumer should never be coached or influenced to report inaccurate information to get the deal bought.

Errors, Oh My!

The consumer completes the application, and during the interview, the dealer determines an error. The consumer had two jobs but they combined all the income on the income line as opposed to splitting the income between the primary income and other source of income. These two incomes cannot be combined as one, so the application needs to be corrected. In this situation, best practice is to strike through the incorrect value with one line, print the correct value above the strikethrough and ask the consumer to initial the change. A dealer should never make changes to the key credit determinants on the credit application without the consent of the consumer. Should the dealer require changes to the application, the appropriate documentation should be retained with the credit application to show cause for the change.

Autograph Please

A completed credit application requires a signature from the consumer. As a best practice, I have clients that will also require initials next to the five key credit determinants. A dealer must have a signed credit application prior to pulling credit. In no way is it acceptable for the dealer to sign the application on behalf of the consumer. It is also unacceptable to write “signature on file” to fulfill the obligation of the consumer’s signature.

Retaining the Source and Submitted Credit Application

Once the consumer has completed the application, and it has been reviewed for accuracy and signed, the dealer will enter the information into their credit application portal and hit submit. Upon entering the application, the dealer must ensure their entries are consistent to what was represented by the consumer. Print off a copy of the submitted credit application and retain copies of the source and submitted app in the deal jacket. Retention of both apps will allow the dealer to audit their process, and it will provide a defense for potential claims that the dealer falsified the information to the bank.

Don’t Forget to Audit

Like with all processes, the dealer needs to audit against the process. On a regular basis, pick a random sampling of deals to compare the source and submitted credit applications. Note when the process went astray and retrain if needed. Take it a step further and spot check the DMS to confirm the printed submitted application in the file is consistent with all versions retained in the software.

A compliant credit application process is a pivotal part of the job. Do not let the process slip or a dealership could find themselves in some deep … water.