Services

Internal Controls

Quality Control initiatives are designed to continually review internal controls, procedures & policies. The quality control methodology performs risk analysis in three key areas: Operational Risk, Financial Reporting Risk and Compliance Risk. The quality control methodology requires that both middle management and senior management teams review the quality control findings and recommendations and take appropriate action. The performance of each portfolio or given account is reviewed each month and review meetings are held with middle and senior management.

New Servicing Account Boarding

CLSI has excellent procedures in place to ensure that new accounts are boarded accurately. Regardless of the vehicle for data entry, whether manual or electronic, the data entered into CLSI’s Loan Management System is then verified by a different staff member to ensure accuracy. Welcome calls are performed to verify account data as well as to establish customer relations.

Customer Relations

CLSI provides a high level of service via its customer service representatives and customer support technology. The customer service function is well automated. The Loan Management Proprietary Software has a queuing system, monitoring delinquency and notifying the respective customer service representative of the daily remainder calls, broken promises, etc. Extensive and routine monitoring of the call center is supervised by middle and senior management to ensure efficiency and provide feedback as to the effectiveness of the follow-up calls. Bilingual customer service representatives are also available to handle the company’s diverse demographic portfolio. In addition, the Loan Management System generates reminder letters, which are sent to the debtors as well.

Default Management

The company’s comprehensive procedures manuals address the necessary action that should be undertaken within particular circumstances. In addition, middle management personnel supervise this function as well, to ensure that the appropriate action is taken to mitigate loss as well as ensure that applicable local and federal laws are adhered to during the recovery process. Supervisory staff members perform extensive call monitoring of the collection representatives to ascertain that proper compliance with the Fair Debt Collection Practices Act (FCRA), the Fair Credit and Transactions Reporting Act (FACTA) and regulatory guidelines are adhered to.

In certain circumstances it may be more prudent to develop a workout plan for the debtor to continue to pay the loan, instead of repossessing the vehicle. In determining appropriate action, the condition of the vehicle must be considered, which will directly influence the resale price of the automobile. The business resolution unit carefully examines the borrower’s willingness to commit, their ability to continue to make payments (which may require a review of the credit report) and also examines collateral value. Features of the company’s collection processes and internal controls include:

• A welcome call, made by a separate department, usually the Underwriting Department, to verify the loan data.

• Prior to the first payment of the loan, a collector makes a courtesy call to remind the customer of the payment (usually five days in advance of the due date.)

• Collection personnel contact a debtor as early as the second and no later than the fifth day subsequent to any payment default.

• Comprehensive collection shifts, days/evenings and Saturdays accommodate the geographically diverse portfolio.

• Western Quick Collect and pay-by-phone form of payment is available.

• The Loan Management System monitors delinquencies and broken promises and immediately notifies the respective collector.
• The default management team handles the asset recovery and has various technologies to enhance “skip tracing”.

Information Technology and Systems

CLSI manages its daily activities through its MIS system, a proprietary finance software specifically tailored for the consumer lending industry. The system allows for detailed and flexible accounting and management reporting systems that can be custom tailored to accommodate various reporting requirements for the Company and its external customers.

CLSI has a computer network in place consisting of twenty-four linked IBM Compatible PC’s. The network consists of three dedicated servers with discrete drives that are backed up individually each night so that, in case of failure, minimal data will be lost. This network allows sharing of files and folders so that various employees may work simultaneously on various projects and files.

CLSI has also invested over $60,000 in state-of-the-art computer software, provided by Paradata Financial Systems (PFS), a wholly owned subsidiary of a NYSE listed company. This software is custom tailored for the Finance Industry, which includes Credit Administration and Collection capabilities.

The UNIX-based PFS software allows CLSI to manage all aspects of its business, including:

• The Collection Department can handle all collection functions in real time and the system includes a state-of-the-art queuing system which brings an up-to-date assessment of the daily collection requirements, including, in order, broken promises from the previous day, loans due today, 90 day accounts, sixty day accounts, thirty day accounts, etc. The software is adjustable so that each collector’s duties may be customized.

• Custom financial reporting software, which allows the common reports available on any financial system software as well as the creation of ad hoc reports. This allows concentration on the vital information regarding the performance of each portfolio.

The UNIX system Server consists of two eighteen gigabyte mirrored drives and two nine-gigabyte mirrored drives in a RAID 1 configuration. The Network Server consists of three eighteen gigabyte drives in a RAID 5 configuration and two eighteen gigabyte drives in a RAID 1 configuration. Any drive failure causes a seamless switch to the unaffected mirrored drive, automatically notifies technical support and allows operations to continue with no indication to the average user and no degradation in performance. Two fully tested back-up servers (UNIX and Network) are also in place, allowing an immediate switch from main server to auxiliary server in case of server failure.

Disaster Recovery

The Company maintains Daily, Weekly, Monthly, and Yearly Back-Up Tapes. The daily tapes are rotated every two weeks and are kept on-site in a Fireproof Safe and, further, each daily, weekly and monthly tape is stored at an off-site location. CLSI keeps all monthly and yearly back ups.

Accounting and Cash Management

The Cashier Department operates in a segregated area of the facility, allowing only combination lock entry for security purposes. The department is equipped to handle customer walk-in payments as well as a night drop box that is examined on the subsequent day. All collections received during a given day are reconciled and are picked up by Brinks Security service each night and on Saturdays. The internal (cash) controls are designed to minimize the risk of loss due to fraud or human error:

• There is a proper division of responsibility and segregation of duties, with separate personnel opening the customer (mail) remittances, personnel responsible for remitting as well as the personnel responsible to reconcile the bank statements.

• Rotation of staff personnel is used for both the purpose of cross training and also to minimize cash defalcation.

• The department has access to on-line banking to monitor the clearing of funds deposited.

• Large bill denominations are monitored and recorded to be able to trace back to the customer if the bill is counterfeit.

• All payments received are automatically updated to the customer accounts.

Another integral part of Accounting is to prepare a monthly Servicing Report accounting for all the activity of each respective portfolio. This information is particularly useful to the collection department to monitor their progress.

Servicer Statistics

Since its inception in 1997 the company has serviced over $150M in Automobile Loan Portfolios and has achieved above market results. The following information depicts the performance statistics:

Classification of Automobile Loans *

* Source: CNW Marketing/Research
** The Static Pool data represent losses prior to offsetting applicable discount.

Note: Although CLSI service more D than C grade paper, its collection performance closely resembles a C grade portfolio performance.

CLSI is operating above industry standards especially in the static pool performance. In addition, the following provides the portfolio loan performance of CLSI through October 2001 compared to Industry Standards.

Commercial Crime Bond

CLSI has in place a $1,000,000 Blanket Bond insured by Fidelity and Deposit Company and a Professional Liability Policy insured by Lloyds of London in the amount of $1,000,000. The bond safeguards the company against the following:

• Loss resulting from dishonest or fraudulent acts committed by an Employee.
• Loss of property directly from robbery, burglary and unexplainable disappearance, etc.
• Loss of or damage to furnishings, fixtures, supplies.
• Forgery or Alteration
• Counterfeit Currency.

(The above-mentioned is only a partial list of coverage. In addition, there is property coverage, general liability and interruption insurance).