By John Flynn, CEO, Open Lending
Last week, the federal banking regulators issued guidance and policy statements regarding implementation of FASB’s Current Expected Credit Losses for public comment. The proposed Interagency Policy Statement on Allowances for Credit Losses and guidance on credit risk review systems offer a handful of questions constituents, such as yourself, can comment on in the next several weeks.
The Policy Statement on Allowance for Credit Losses would codify CECL accounting methodology instead of the incurred loss methodology. Larger banks have already been subject to CECL compliance, but implementation for smaller banks and credit unions was delayed until yearend 2021. The risk management system guidance would provide safe and sound practices for developing and maintaining credit risk review systems.
There’s good news on this front! While the changes are expected to force many institutions to budget more for allowance for loan lease losses, methods to mitigate the impact exist. If you’re an Open Lending client, you’re already taking advantage of the opportunity, and if you’re not an Open Lending client, you’ll want to keep reading.
Open Lending’s Lenders Protection provides 80% default coverage on loans made through our system. What that could mean for your bank or credit union is less reserves held against your car loans! Many of our clients actually come out net positive on defaults, as high as 100% more than the original value of the loan!
Open Lending backs your loans through our LendPro system because we are so confident in our data. We employ so much more than credit scores to develop a more accurate view of your borrowers. Our default forecasts are more than 99% accurate!
Open Lending helps you mitigate actual losses by constantly updating our data analytics to ensure safer and sounder lending, as well as potentially decreasing your reserves, which could be quite an issue when CECL compliance is finally required for community banks and credit unions. Contact us today for more information!