A small but growing group of financial institutions is looking to apply the premise of self-service banking to loan origination.

Using a new automated loan terminal from Affinity Financial Group of Columbia, S.C., these institutions hope to eliminate some of the time and expense associated with loan officers and branch offices when selling loans and providing loan information to customers.

"Just as the ATM [automated teller machine] replaces tellers for basic transactions, so does the ALM [automated loan machine] replace loan officers," said Mel Ray, president of Affinity.

One of the most attractive things about the ALM, according to bankers kicking its tires at the Bank Administration Institute's Retail Delivery Systems conference, is that financial institutions do not purchase and drive the terminals, as they would an ATM.

Instead, Affinity runs the terminals after placing them in locations designated by the financial institution. In exchange for Affinity's assumption of these fixed costs, the banks pay the company a fee for each transaction.

Affinity executives place the cost to a typical $200 million-asset institution for originating a loan using an ALM at about $82. This is less than half cost of a loan handled by a live bank officer, Affinity officials said.

In addition, they said ALMs could issue a decision on a loan in under 10 minutes.

Several bankers at the conference questioned the prudence of placing a loan function in the hands of a machine. But, after testing the terminal, many of these same bankers were more convinced of the terminal's ability to handle such functions.

Since the financial institution sets an ALM's loan approval criteria, an institution can choose to approve only the most obviously qualified applicants. Applications that look promising but need more scrutiny from a loan officer can be automatically forwarded to a bank branch.

The ALM goes through several steps designed to prevent fraud. These include the recording and verification of an applicant's credit card number, and the constant cross referencing of information placed on an application.

In addition, each loan applicant is photographed several times during the course of the transaction. If the ALM issues a check, the applicant's photograph appears on it. In lieu of a check, loan customers can choose to forward loan proceeds to a third party, such as a car dealership.

The terminal, which has a 486 personal computer at its core, satisfies all regulatory requirements associated with lending, including issuance of the truth-in-lending statement.

Each ALM has access to the major credit bureaus. Credit decisions are made, in part, using modeling software from Fair, Isaac & Co. "We are able to totally replicate the loan process in a court of law, if necessary," said Mr. Ray.

A handful of institutions have signed on to use Affinity's ALMs. This group includes South Umpqua State Bank, a $115 million asset bank based in Roseburg, Ore., and Carolina First Bank, a $262-million-asset bank in Greenville, S.C., Affinity officials said.

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