Automation is quickly becoming the new norm in auto finance, prompting auto lenders to partner with fintechs to simplify their regulatory practices.

One of the latest fintechs to enter the auto finance scene is Lender Compliance Technologies (LCT), which specializes in compliance solutions for auto and powersports lenders. Founded in early 2020, LCT in April launched Refund Control, an end-to-end digital tool that allows lenders to manage and track cancellations and refunds for products spanning finance and insurance, guaranteed asset protection (GAP) and vehicle service contracts, LCT President Glenn Munro told Auto Finance News.

Currently, many lenders’ compliance and regulatory processes are done manually, opening them up to potential errors that can trigger regulatory issues, Munro said. When early payoffs, repossessions, total losses or other events trigger a refund of an ancillary product, lenders can lean on technology to send cancellation notices and track each step of the cancellation, including how much the cancellation is worth and when refunds have been paid out, creating an audit-ready system.

“The regulators want to ensure that every dime that is due towards the consumer is applied,” Munro said.

These budding technologies are also piquing investor interest. LCT, for one, announced in June it raised $4.15 million in a series A funding round joined by Automotive Ventures and Driven Capital Partners. The funding will be used to enhance LCT’s current technology stack and invest in new compliance solutions for lenders, Munro said.

Technology-based compliance solutions have been growing in popularity within the finance industry for a while, said James Kim, a partner with Ballard Spahr, noting it is a good sign that investors are supporting the efforts.

“I see it as a positive development when any company is coming up with a solution that helps companies comply with the law, stay out of trouble and maximize customer experience,” Kim said. “That’s a market-driven solution as opposed to a regulator-driven solution.”

Still, while new tools provide valuable resources for auto lenders, financial institutions must do their own due diligence to ensure their practices remain compliant, Kim said. “It is crystal clear from prior consent orders and regulatory guidance that lenders are held responsible for their vendors.”

Lenders also must ensure any outside services they use adhere to applicable state laws, Ken Rojc, managing partner of the Auto Finance Group at Nisen & Elliott told AFN. “That’s the heart and soul of any refund processing solution.”