A timely digest of
specialized reports and
for the consumer
DMS Partners Grow with the Help of Carleton’s
Calculation and Document Preparation Services
As existing and new Dealer Manage- president of AVAbahn. “Carleton’s compli- PUBLISHER’S NOTEBOOK
ment System (DMS) software providers ance expertise and LoanSmart software This is a dynamic industry. Every day
begin to develop their next generation solutions ensures that MSDMS™ will pro- there are new technological developments
internet-based solutions, they recognize vide accurate lending and leasing compu- that enhance speed, productivity, accuracy
the importance of being able to support tations and documents in compliance with or service delivery. These enhancements are
the calculation and document prepara- all regulations nationwide.” especially valuable when they are the result of
tion requirements of major captives, auto DockMaster partnership collaborations.
lenders, aftermarket add-ons and state As a leader in marine lending automation,
agencies. The exciting news about Carleton’s
DockMaster recognized the importance of partnerships with AVAbahn and Dockmaster
Carleton is helping its partners grow their having a long-term solution for provid-
INSIDE business with its cost-effective compliant ing compliant computations. DockMaster
detailed in the story on this page clearly
demonstrates the synergistic impact of
THE POWER OF
2 calculations. Many of these partners also Marine Management Software’s exclusive collaboration. In both cases, our LoanSmart
rely on Carleton’s seasoned SmartDocs “Boat Sales &
Amortization schedules are software provided the ideal platform for power-
more than payment allocation software services for producing the clos- F&I Module” ful new systems to support the dealer networks
tools, they document that a ing documents associated with a vehicle provides a comprehensive retail financ- of these companies and thus maximize sales
calculation routine has arrived sale or lease. Carleton’s extensive library ing software solution to marine dealers
at the “right payment”. and profit opportunities.
of state documents and its ability to inte- across the country. The robust calculation
grate add-on provider’s documents gives capabilities of Carleton’s SmartCalcs al- We’ve also had the opportunity to
Changes to Illinois
3 its DMS partners a compliant solution that lows the dealer additional point of sale op- collaborate with a number of major private
meets all the docu- tions that include college lenders this past year. Our Smart
Loan Act. ment needs of their all debt protection Calcs Student Lending software supports the
dealers. products and af- new disclosure requirements and easily inter-
CaRLETON’S STUDENT 4 AVAbahn and termarket add- faces with a private lender’s loan origination
ons. “Having Carleton as a partner means system, making the process smooth and easy.
SmartCalcs student lending DockMaster are two of Carleton’s newest
software supports all that our dealer clients will not only have (See story on page 4).
partnerships taking advantage of its calcu-
the new disclosure the security of knowing that their loan cal- As we noted in the first sentence of this
lation and document preparation support.
culations are accurate and compliant but column, ours is a dynamic industry. We’re
AVAbahn will also make their Finance & Insurance excited about our partnerships with so
AVAbahn’s Dealer Management System
products more robust and saleable,” noted many great companies and we’re looking
for Microsoft Dynamics AX (MSDMS™)
Cam Collins, president & CEO of Exuma forward to forging relationships with even
has integrated Carleton’s SmartDocs and
Technologies, Inc. more of you. The team here at Carleton
SmartCalcs software into their
For more information thrives on this dynamism and is eager to help
new DMS. Carleton’s LoanSmart
To find out more about Carleton’s with your needs.
software services allows AVAbahn
to compliantly support all the lend- LoanSmart software and support ser- We’re also excited about our new offices in
ing and leasing computations and vices, call Carleton’s sales department at South Bend immediately across the street from
documents generation related to sales or 800-433-0090 or visit our website at the University of Notre Dame in a new complex
lease transactions for their dealerships. www.carletoninc.com called Eddy Street Commons and just down the
block from the University’s new Center for Nano
“We’re very pleased to have the oppor-
Science and Technology. Please make note of
tunity to partner with Carleton and lever-
our new address on the back of this newsletter.
age their 40 years of experience in the
And, if you’re in town, we’d love to show you
auto lending industry,” said Richard Ward,
our new space.
Serving consumer lending and credit insurance providers with full-service, one-stop solutions.
The Power of the Schedule
These days it seems like the vast majority of authoritative sources pass a State Trooper camouflaged and hidden on the side of the
referenced to support any position come from the internet in some road. After I exhale and let my foot off the accelerator from 62 mph,
OUT ON THE form or another. So when we began this article about the vir-
tues of the amortization schedule, we turned to the omnipresent
for some reason the trooper has never followed me. Must have been
distracted I guess.
STREET “Wikipedia” on the web. The definition of an amortization schedule The moral is I didn’t get a ticket but I wasn’t in the right either.
from that source is: That may seem like a silly analogy but simply averting detection isn’t
Carleton staff take part in “… a table detailing each periodic payment on an amortizing loan synonymous with being unequivocally compliant.
various conferences and an- (typically a mortgage), as generated by an amortization calculator.” Every lender should have the confidence and contentment of
nual meetings throughout the Of course it is impossible to fully understand an amortization knowing their disclosure calculations are accurate, precise, and
year. We are pleased to be “schedule” without the definition of “amortization”: genuinely credible.
involved in the following: “… the process of paying off a debt over time through regular The one indisputable proof that a payment is correct is an
payments. A portion of each payment is for interest while the remain- amortization schedule that utilizes all the rules and parameters fit-
• AFSA 15th Vehicle ing amount is applied towards the principal balance …” ting the lender’s philosophy of interest earnings and accrual.
Finance Conference We certainly have no objections to this very basic definition but Take the $172.54 payment stated earlier in the article. For a
San Francisco – restricting the value of an amortization schedule in the lending $1,000 loan accruing interest at 12 percent annually and repaid in
February 2011 calculation business in such a manner is a little like confining six consecutive equal monthly payments.
• NADA Convention & Expo “automobile” to a “four wheeled machine that gets you from place
Payment Allocation – $172.54
San Francisco – to place”.
Pmt. No. Beg. Bal. To Interest To Principle End Bal.
February 2011 Definite Proof of “Right Payment” 1 $1,000.00 $10.00 $162.54 $837.46
Most in the industry view an amortization schedule as a tool to 2 837.46 8.37 164.17 673.29
• AFSA 28th Independents
track the allocation of the payment each month to the attributable 3 673.29 6.73 165.81 507.48
Finance Conference & Expo 4 507.48 5.07 167.47 340.01
Miami – April 2011 portions of inter-
5 340.01 3.40 169.14 170.87
est and principal.
• Credit Insurance 6 170.87 1.71 170.83 0.04
It also provides
Association Spring Meeting a bit of a road In a “real-world” scenario, the lender would either collect $1.67 of
Clearwater, Florida – map of where interest, effectively waiving the $.04, the last month or incorporate
March 2011 a loan/trans- an odd final payment of $172.58 into the original calculations and
• Consumer Credit Insurance action stands at disclosures. Either of those measures will ensure the final balance
Association, 60th Annual any point in time of the transaction is 0.
Meeting, Tucson – based on how What the above illustration represents is a straight and pure
May 2011 the loan was amortization schedule of the loan disclosure data as an analytical
scheduled to be compliance tool. The positive yet small balance of $.04 would lead
• CIMRO Annual Conference
paid out. While a schedule certainly does all those things, it also has one to believe the $172.54 payment is acceptable and accurate.
a much larger purpose for those of us in the calculation business, The common rule of thumb is that a positive balance that is less than
it serves as the one definitive proof that a calculation routine has or equal to $.01 x the number of payments is acceptable.
• AFSA Government arrived at the “right payment.”
Affairs Forum, Denver Perform “sure-fire” test
You have heard me opine many times in the past about all the The sure-fire test is to add a penny and amortize the same data
– June 2011 varying parameters that can produce distinctive payments for using a $172.55 monthly payment. The results from that adjustment
• AFSA 94th Annual Meeting the same set of loan data. Even understanding that concept, any yield the following schedule:
Irving, Texas – developer of lending software has to have a vehicle for convincing
October 2011 the user/lender/regulator why $172.54 represents the proper Payment Allocation – $172.55
payment for a given loan. Beg. Bal. To Interest To Principle End Bal.
$1,000.00 $10.00 $162.55 $837.45
When two tools produce payments of $172.54 and $172.51 for a 837.45 8.37 164.18 673.27
given loan how do you tell one is correct and one is not? Is the pay- 673.27 6.73 165.82 507.45
ment from whatever tool/system that has been in the office longest 507.45 5.07 167.48 339.97
the “right” answer? Is the new tool always wrong? Or vice versa? 339.97 3.40 169.15 170.82
170.82 1.71 170.84 (0.02)
Merely averting detection?
Our customer service staff fields such questions every day. The The negative final balance indicates an overcharge at 12
unifying theme for the majority of these calls is usually something percent for $1,000 and a six-month term. Remember that this is
like “I get a different payment on our “XXX” system and we’ve used the schedule as a diagnostic tool and not as a resource for the
that for 10 years and been audited and never had a problem.” servicing of the loan.
On the face of things, that appears to be a sound argument. How- The negative balance is always a warning sign and indicates that
ever, the best analogy I can provide is the ride home from work. I am the payment applied on the schedule is too large for the correspond-
usually in a hurry to get home and often find myself driving a wee bit ing interest rate and loan balance.
faster than the 55 mph posted speed limit. I’ve done that regularly These companion schedules prove that $172.54 is indeed the
for the 25 years I’ve worked at Carleton. On occasion, I suddenly “right” payment for a $1,000 loan accruing interest at 12 per-
Effective State Changes
cent annually. The $172.54 is the closest dollar and cent payment
that can be computed without overcharging. The schedule also ILLINOIS
prescribes to the following parameters and policies desired by Various provisions of the Consumer Installment
the lender: Loan Act, the Illinois Financial Services The following
• All payments are equal in amount (used often when payment books Development Act, and the Payday Reform Act
have been amended by the passage of HB 537 information is
which is effective March 21, 2011. presented by the
• The interest accrues on monthly/periodic basis where the
charge from November 1 to December 1, and all subsequently Consumer Installment Loan Act
scheduled payment dates, is 1/12 of the annual rate of • The maximum loan amount has been increased to $40,000.
12 percent. • Imposition of a 36% annual percentage rate cap; title loans Department. In order to
• Interest is 5/4 (near) rounded each month to a two place dollar and are exempted from the rate cap.
keep our customers
cent value • Mandates that loan payment must be fully amortizing and
• Any specific line on the schedule can be validated by use of repayable in substantially equal and consecutive payments. abreast of what is
I=PxRxT • Creates a “small consumer loan” section of the Act for loans
happening in the
So, where does the $172.51 fit in? That payment is “right” for daily of $4,000 or less.
interest accrual and a $1,000 loan accruing interest at 12 per cent • The annual percentage rate cap for small consumer loans if consumer credit and
for six months: the loan amount does not exceed $1,500 is 99%.
Payment Allocation – $172.51 • Creates a new maximum rate structure for small consumer
Pmt. No. Beg. Bal. To Interest To Principle End Bal. loans exceeding $1,500 that includes an acquisition charge industries, the
1 $1,000.00 $9.86 $162.65 $837.35 and monthly handling charges based on the loan amount.
2 837.35 8.53 163.98 673.37 following law changes
• The acquisition charge on a small consumer loan is only
3 673.37 6.86 165.65 507.72 refundable within the first 60 days of the loan term. have been compiled
4 505.72 4.67 167.84 339.88
5 330.88 3.46 169.05 170.83 • A small consumer loan must have a minimum repayment
term of 6 months. for your review. Please
6 170.83 1.68 170.83 0.00
• Prohibits a lender from extending a small consumer loan to a check to see if any of
*Daily interest, accrual is dependent on specific dates. The contract borrower if the total monthly loan payment exceeds 22.5% of
date is in November and ignores leap year when it occurs. the borrowers gross monthly income. the listed changes will
This represents one of those rare scenarios where six equal monthly Financial Services Development Act impact your operations.
payments will cause the loan to liquidate exactly to zero. More often • A provision added to the definition of “financial institution”
than not, without employing an odd final payment amount, the final that lenders licensed under the Consumer Installment Act or
balance of most loans is small positive value. The general rule of Sales Finance Agency Act are prohibited from charging an
thumb is that as long as the final balance is less than $.01 x number annual percentage rate exceeding 36%.
of payments, it is most likely an acceptable balance. Adding a penny
Payday Reform Act
to the disclosed payment, as we did earlier, is the one true test of
whether level payments for the loan term properly amortize the debt. • Creates the term “installment payday loan” which is included
as part of the definition for the general term “payday loan”.
Credible Validation of Payment
• An installment payday loan has a term of not less than 112
The parameters of presumed interest accrual and corresponding
days and not greater than 180 days.
calendar are a key component to credible validation of the payment.
It is often taken for granted as inconsequential or viewed as a generic • An installment payday loan must be fully amortizing
component to the transaction. In reality, we regularly employ up to 10 and include payments that are substantially equal and
different calendars that affect interest accrual and the corresponding consecutive.
payment calculated. That type of diversity in the industry dictates the • The payments in an installment payday loan must have a
need for an empirical method of determining which payment is truly minimum time period of 13 days and a maximum time period
“right” for the parameters and data presented. of one month between scheduled due dates.
For example, the footnote on the last schedule illustration brings to • A prohibition on making a payday loan to a borrower if the
light the point that daily or per diem interest is date dependent. The total of all existing payday loan payments in the first calendar
payment for the loan data with a contract date in November will differ month of the loan excess the lesser of:
from a contract date in December. It’s the nature of the beast. Higher a) $1,000;
balances subject to 31 days of interest early in the contract produce or
a different interest accrual profile than a loan starting in a month that b) 25% of gross monthly income if one or more payday loans
has 30 days. That parameter characteristic must be recognized before
c) 22.5% of gross monthly income if one or more installment
a proper payment can be either computed or validated.
The concept of using an amortization schedule as a validation tool can
d) 22.5% of gross monthly income if a payday loan combined
be extended into other hard to grasp concepts such as credit insurance
with an installment payday loan.
premiums. Since a schedule tracks the scheduled out-standing principal
Continued on page 4 Continued on page 4
Carleton’s Student Lending Software Helps
Private Lenders Comply With appendix H
Effective February 14, 2010, private lenders were required loans, deferred payments, interest only and/or equal princi-
to provide more complex disclosures when making private pal and interest payments, graduated payments, and optional
educational loans. Title X of the Higher Education Opportunity capitalization of deferred interest, either quarterly, annually or at
Act (HEOA) amended the Truth-in-Lending Act and Regulation the end of the grace period. The SmartCalcs software can quickly
Z and will require lenders to display a more detailed itemiza- and easily interface to a private lender loan origination system
tion of the Amount Financed and a more complex Estimated and perform all the required computations in compliance.
Repayment Schedule & Iowa Student Loan, College Foundation Inc, and Campus
Terms. The Itemization Partners are just some of the
of the Amount Financed private lenders and service pro-
must disclose the mul- viders that are using Carleton’s
tiple cash advances SmartCalcs Student Lending Software to meet
(Disbursements) and their disclosure requirements. Walter
all upfront fees . The Witthoff, senior vIce president, from Iowa
Estimated Repayment Student Loan states, “We have relied on Carleton
Schedule & Terms must disclose the interest accrued during the over the years for compliance support.
deferment period and the payment schedules based on the quot- When faced with this new disclosure requirement,
ed rate and highest possible rate. Lenders will be required to we turned to Carleton for their financial computa-
provide the new loan disclosure when the loan request has been tional expertise. We easily integrated SmartCalcs into our loan
approved and again when the student accepts the final loan. origination system and met the Appendix H disclosures
Carleton’s SmartCalcs Student Lending Software support requirements.” To learn more about SmartCalcs, contact Ken
sall the new disclosure computation requirements illustrated in Solnoky at Carleton at 574-243-6040 ext. 241.
Appendix H including multiple disbursements, grace periods,
origination and miscellaneous fees, fixed and variable rate
The Power of the Schedule
Effective State Changes Continued from page 3
Continued from page 3 Street-smart,
• If pre-paid in full, the interest balance profile, single premium net payoff credit life can be illustrated by software
refund must be by the actuarial applying the monthly life rate to each outstanding principal balance. The sum 1251 N. Eddy St.
method. The Rule of 78ths is of those monthly premiums is the correct single premium charge. Suite 202
prohibited. South Bend, IN 46617
For most of us, it is much easier to view such illustrations in a dollar and
The amendments became law as 800-433-0090
cent form than to try and revisit our high school algebra skills to understand Fax 574-243-6060
PA 96-0936 after being signed by
where a premium comes from. www. arletonin .com
the Governor on June 21, 2010. The
effective date is 9 months following Like so many other issues in the consumer finance industry, the
becoming law. details surrounding the composition of loan calculations and
disclosures are often taken for granted. But, to paraphrase a favorite saying
“the devil is indeed in the details.”
At the proverbial “end of the day” whether a payment matches
another system is not necessarily a validation of accuracy and
precision. Understanding the characteristics that drive the parameters adher-
ing to a particular lender’s policies and goals is essential to evaluating any
calculation disclosure. The amortization schedule is a powerful tool that can
assist in assessing whether desired objectives are being met.
Serving consumer lending and credit insurance providers with full-service, one-stop solutions.