Consumer lending and loan origination or management of any type are, by nature, risky processes. Lending requires lots of trust in the borrower, trust in the lender, and a significant amount of trust in the systems and processes in place that carry the loan from application day to the maturity date. One slip-up anywhere in the process can lead to significant issues or consequences for all parties involved.
Under the risk umbrella is the risk of human error. People are not perfect, and even the most innocent mistake can throw a wrench in the lending process, especially in the origination phase.
But just how risky can human error be? Let’s take a look at what’s possible if a mistake is made:
Human Error Risk #1: Inaccurate Data Entry
Loan applications are lengthy and time-consuming and can sometimes seem overwhelming to applicants, whether they have filled out a similar application before or not. Even on a person’s sharpest day, it’s possible for them to enter inaccurate data that goes unchecked, especially in traditional lending processes that do not have automation tools in place.
It’s also possible to knowingly lie on an application and intentionally enter the wrong data in hopes of getting approval for a loan that the borrower should really not be approved to receive.
If a mistyped figure or intentionally incorrect data piece is provided, issues like data mismatches can spring up and throw the application process off. If the inaccuracies are not caught, either the lender or the borrower can suffer from poor or inaccurate decisioning. It’s possible for the lender to approve a loan for someone who is high-risk and should have been denied. It’s possible for a borrower to be denied when they are low-risk and should have been approved. It’s possible for lenders to suffer losses after approving fraudulent applicants. And the possibilities continue.
Human Error Risk #2: Poor Underwriting
Underwriting involves a lender analyzing an application and all the data and documents submitted to determine whether the borrower qualifies for the loan or not. While an automated underwriting process is common practice for many consumer lending companies, some still rely on manual underwriting processes or offer manual underwriting to borrowers with unique financial circumstances.
Manual underwriting is time-consuming and requires significant attention to detail. There are many documents to pore over and many data pieces to keep track of. One misread figure or misunderstood piece of data can interfere with final decisioning for the loan. Again, some borrowers may be approved when they should not be, and some may be denied when they should not be. If a low-credit applicant is approved because of underwriting errors, the lender runs the risk of losing money, whether they deal with a frequently delinquent borrower or a borrower that ultimately defaults on their loan.
Human Error Risk #3: Inaccurate Calculations
Any lending process that requires manual calculations risks inaccuracies. As skilled and knowledgeable as loan officers are, they may enter a number incorrectly into the calculation, resulting in the wrong final figure. Miscalculations happen, but not all errors are caught, especially when automation solutions are not being used.
The consequences of a miscalculation are pretty significant and can lead to incorrect loan totals, interest rate calculations, and more, which can lead to major problems for either the borrower or the lender.
Human Error Risk #4: Compliance Issues
The lending industry is heavily regulated, and consumer lending companies must remain in compliance with the rules, regulations, and standards for lending money to borrowers. Traditional lending processes rely heavily on human data entry and calculations, and errors could lead to infractions of any of the rules a lender is required to follow. Such violations could then result in lawsuits, hefty fines, a damaged reputation, and more for the lender.
Ways a human error can cause your consumer lending company to appear non-compliant include:
- Denying a borrower as a result of an error could look like discrimination against the borrower based on their age, race, sex, national origin, etc.
- Denying a borrower or even moving a loan forward as a result of an error could look like intentional fraud on the lender’s part.
- Denying a borrower or even moving a loan forward as a result of an error could look like the lender is engaging in unfair practices among certain borrowers and applicants.
How Can You Reduce the Risk of Human Error Within Your Consumer Lending Company? Choose absVision.
absVision is an automated lending software that greatly reduces the possibility and opportunity for human error in the loan origination process. With advanced automation solutions, absVision works to ensure data entry, underwriting analysis, and calculations are all accurate and verified, leading to more accurate decisioning and helping lenders remain compliant with the regulations in place.
To learn how you can benefit from our robust, easy-to-use LOS, talk to an ABS expert today! 800-727-7534
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