A payment calculator seems like a technology offered and used by everyone. Plug in a few numbers and out pops a monthly payment.
The idea is simple, right?
Unfortunately, this illusion of simplicity is significantly costing RV lenders and dealers.
What many do not realize is that most payment calculators on the market are not built to handle the intricate complexity of today’s regulatory environment. At best, they are basic tools for consumer estimation.
At worst, they are ticking time bombs of compliance risk.
For RV lenders and dealers, the calculator is not just a convenience. The calculator is the engine of the entire loan origination process. Numbers are crunched on a payment calculator; the deal is shaped, and the foundational disclosure documents are created based on the calculator’s figures.
The quality of this engine directly impacts compliance, profitability and customer trust. To truly succeed, you need a calculator that goes beyond surface-level math and dives deep into the regulatory trenches.
Beyond the Basics
Most generic calculators operate on a one-size-fits-all model. They might handle basic interest and payment calculations for a generic set of criteria, but they completely miss the critical details that can make or break a loan contract.
Lenders and dealers need to leverage calculator technology that accurately incorporates federal disclosure requirements and state and local jurisdiction tax laws and regulated fees.
Consider the reality of selling an RV. A dealership in Texas faces a completely different set of regulations than one in New York. State-specific tax laws, local fees and unique document requirements can vary dramatically.
A simple calculator that does not account for these variables will produce an inaccurate payment. Likewise, if the calculator cannot handle different time-counting calendars, such as those accounting for daily interest, it will fail to generate a precise payment.
Inaccuracies can lead to a host of dealer problems, from a customer being presented with a false payment quote to a loan that is technically non-compliant from the start.
The complexities do not stop at state taxes. RV and specialty vehicle finance contracts are filled with nuanced regulatory requirements, including variations among the states in the interest accrual methods and types. A robust payment calculator must be a dynamic tool, one that is continuously updated to reflect the evolving regulatory landscape.
The best payment calculator solutions today are more than just a calculator. They are a robust compliance engine. The calculator may feature 10-12 different calculation APIs that support every loan origination process step.
Among the most powerful APIs is the compliance layer. The compliance layer helps lenders follow current laws and verifies that loans are computed accurately after they are originated. The compliance check can ensure Truth in Lending Act (TILA) disclosures are sound and state usury limits are not exceeded.
A built-in audit functionality such as this is a game-changer, enabling lenders to proactively mitigate risk and stand up to regulatory scrutiny.
From Calculation to Documentation
The calculation is only the first step. The next step is to ensure that the correct information is accurately recorded on the relevant documents for a transaction.
Previously, the process was conducted manually and prone to errors. A lender would get a calculation from one system, then have to manually input the data into another system to generate the documents. The manual input increased the risk of human error and created significant inefficiencies.
Today’s leading document generator platform seamlessly packages all the accurate computation information onto the necessary documents. An end-to-end, integrated approach to documentation ensures that the initial calculation’s accuracy flows through to every final document. The result is a cohesive and compliant transaction.
Be Wary of Free Calculator Engines
Precision and accuracy are paramount when computing consumer financial calculations. Whether you are calculating TILA APRs, payment amounts, finance charges or loan payoffs, relying on the wrong tools can lead to compliance risks, misleading audit results and even financial penalties.
For example, although the Federal Financial Institutions Examination Council (FFIEC) APR Calculator is easily accessible and commonly used throughout the industry as a resource to check compliance, the free tool is limited in its capabilities.
TILA regulations allow two types of APR methods, the actuarial method and the U.S. Rule method. Yet the FFIEC tool only validates the actuarial method. Being aware of the tool’s limitations is important so you do not alter your calculations and potentially increase your compliance risk.
Many free tools are unable to handle various types of fees that have different computational properties under state law. They also may struggle to account for different interest calculation methods (simple interest, 365/360, etc.).
For RV buyers, especially, whose loan terms are often longer than standard auto loans, even small miscalculations can create significant consumer confusion and legal exposure. Miscalculations are especially troubling while regulators increase scrutiny of RV and automotive lending.
The True Competitive Advantage
In a competitive market, the difference of a few dollars on a monthly payment can lose a customer. More importantly, a non-compliant loan can result in massive penalties, legal fees and reputational damage. A finance manager’s true competitive advantage does not come from a simple, cheap calculator. The difference lies in using a trusted, precise, and compliant solution.
Today’s leading solutions provide the ability to navigate federal, state, and local law complexities. The solutions do so through a dynamic compliance API, along with integrated document generation platforms, to demonstrate a clear, unmatched value proposition.
Lending companies today must look beyond the surface and invest in a calculation engine that provides peace of mind, operational efficiency and a solid foundation for your RV retail and financing business.
Sarah Way Milovich is general counsel and vice president of compliance at Carleton. Her legal background and expertise include business law, contract development and documentation, intellectual property regulations, property insurance law and other litigation disciplines.
