In a market defined by volatile interest rates, relying on static, monthly rate sheets is a recipe for margin squeeze. Join the Canadian Lenders Association and industry experts to see how leading lenders are breaking free.
Key highlights:
- Stop the Squeeze: How to transition from “price taker” to “market leader.”
- Beyond Credit Tiers: Using AI for granular, risk-aligned pricing.
- Future-Proofing: Balancing dealer reserves with net yield transparency.
Watch now to modernize your pricing engine and outpace the competition.
Speakers
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Keith Hickey President & Principal Consultant Torwood Consulting Inc. Speaker -
William Ely Global Banking Solutions Manager Earnix Speaker
Transcript
1. The “1995 Problem”
The speakers open by describing the current state of Canadian auto finance as being “stuck in 1995.”
- The Issue: Many lenders still use static, monthly rate sheets that are distributed to dealers.
- The Consequence: In a volatile interest rate environment, these sheets become obsolete within days, leading to “margin squeeze” where the cost of funds rises faster than the lender can adjust their pricing.
2. The Dealer Reserve Controversy
A significant portion of the talk addresses Dealer Reserves (the commission dealers make by marking up a lender’s “buy rate”).
- Yield Erosion: Every time a dealer marks up a rate, it can actually complicate the lender’s revenue forecasting and cut into the net yield.
- Selection Bias: Dealers often choose lenders based on the highest commission rather than the best fit for the borrower, creating a “volume vs. profitability” trade-off for the lender.
3. The AI Solution: Risk-Aligned Pricing
Will Ely (Earnix) explains how AI replaces the “static sheet” with a dynamic engine:
- Granularity: Instead of broad credit tiers (e.g., “700+ score gets X%”), AI models evaluate hundreds of variables in real-time to price for the specific risk of that individual deal.
- Simulation: Lenders can run “what-if” scenarios to see how a 0.25% rate change will affect their market share and “cashing rate” (the percentage of approved loans that actually close) before they commit to the change.
4. Regulatory and Fairness Trends
The panel discusses the FCAC (Financial Consumer Agency of Canada) and the push for transparency.
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Auditability: They argue that AI isn’t a “black box.” In fact, it provides a more auditable trail than a human loan officer making a manual exception, which helps with compliance and fairness reporting.
5. Implementation Strategy
The webinar concludes with advice for lenders who feel overwhelmed by the tech:
- Start Small: Don’t replace your whole Loan Origination System (LOS). Instead, plug an AI pricing engine into your existing workflow via API.
- Bridge the Gap: Ensure the “pricing team” is as analytically advanced as the “risk/credit team.”