E-Contracts for Auto Loans

E-contracts are auto loan contracts that original through the internet, and then are executed electronically. They have become very popular over the past few years in the United States with the advent of the internet and all that it has proven itself to be. These auto loan asst-backed securities, or ABS as they are known, may be paperless but they are still rated.

The Fitch Ratings let people know how well the auto loans are doing and if they are reputable or not. They say that they have virtually no problem including these types of loans in their annual ratings, as they are the same as traditional auto loan contracts. They say they use the same process for rating them as they would for anything else, as legally speaking they are the same loans.

Their only concern is the securitized way that the transactions are processed, as traditionally paper auto loans come from a pool of loans using the Uniform Commercial Code or UCC. The handling of the UCC documents, especially as it pertains to the actual physical possession of the auto loan, is the thing that must be looked at. They say that if they are filed under UCC properly, and controlled in a way that makes it uniform, then there is no problem with the documentation.

Fitch says that the information taken with respect to warranties, covenants, etc. and that security interest has been granted, is enough to make it considered a first perfected priority security interest. They say that the physical paper documentation usually has an original written signature, whereas E-contracts do not. They have electronic signatures which makes it different from paper documentation. E-contracts can come through the internet at the dealership as well as being purchased over the internet before the prospective auto loan sale takes place. They say that for convenience alone, they expect that e-contracts will continue to meet the maintenance requirements for auto loan contracts.

Back to April Index