Royal Bank of Canada has built an indirect auto lending business, with expectations of expanding it 300% in the next five years.

For the past year and a half it has been building a dealer network and refining a business model that it believes would protect it against an anticipated slowing of auto loans granted through bank branches.

Royal Bank officials are predicting Canadian consumers will begin acting more like U.S. borrowers, who tend to get auto loans directly through the lending divisions of the major automobile companies. These so-called "captive" lenders account for the vast majority of the $325 billion U.S. auto loan market.

"We see one-stop shopping for the car and the financing" coming to Canada, said Alberta G. Cefis, vice president of personal credit services at the $166 billion-asset bank, which has announced a deal to merge with Bank of Montreal.

"We have to be where the consumer wants to be, or we risk losing our entire auto portfolio," she added.

Royal Bank has installed CreditRevue software from Credit Management Solutions Inc. of Columbia, Md., to support its indirect lending unit.

It decided to install CreditRevue rather than develop its own system, which would have "taken substantially longer, cost more, and would not have been based on a proven technology and platform," said Ms. Cefis.

CreditRevue receives faxed loan applications from dealerships and makes decisions on applicants' creditworthiness in two hours or less.

Ms. Cefis estimated that workers in the bank's dealer finance center would be able to handle many more applications a day with CreditRevue-50 to 100, as opposed to eight to 12 applications without it.

CreditRevue also categorizes loans by risk and adjusts interest rates according to creditworthiness.

"It used to be that you either made the loan at 8% or you didn't," said Nancy Weil, senior vice president of marketing at Credit Management. "Today banks need tiered percentages-it might be 8%, 8.5%, or 9%-depending upon which credit category you fit into."

Royal Bank chose not to use Credit Management's CreditConnection network, which lets dealers send loan applications to the bank electronically via terminals.

The bank has also chosen not to publicize its Web site for auto lending, given its belief that customers are buying loans increasingly from dealerships, not from banks.

Other banks' attempts to generate auto loans through the Internet have fallen flat. After less than one year of operation, International Business Machines Corp. stopped supporting Auto Loan Exchange, a system for originating auto loans on the Internet that it had installed at Chase Manhattan Corp. and other financial institutions.

"We didn't see the customer demand from the dealers," said IBM spokeswoman Laura Keeton. "They didn't have any interest in paying for the technology."

Other CreditRevue customers include BankAmerica Corp., Banc One Corp., Comerica Inc., NationsBank Corp., Wachovia Corp., Wells Fargo & Co., Associates First Capital Corp., WFS Financial Inc., Nissan Motors Acceptance Corp., and General Motors' GMAC Corp.

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