GAP Refund Penalties for CUs Goes Beyond Colorado
When compliance and doing the right thing by members go hand in hand, everyone wins.
A handful of credit unions in Colorado found themselves in hot water this year. As CU Times reported, they agreed to settlements totaling $6 million for failing to return GAP fees to members.
Per the article, “Colorado law requires that the lender automatically refund borrowers any unearned GAP payments.” The state attorney general strongly pursues these consumer protection cases. However, credit unions not serving the Centennial State need to be on alert as well.
In 2019, the CFPB issued supervisory highlights, looking to review “auto loan servicing activities, primarily to assess whether servicers have engaged in unfair, deceptive, or abusive acts or practices (UDAAPs) prohibited by the Consumer Financial Protection Act of 2010 (CFPA).”
It’s not like that applies to your credit union, though! Think again, because the CFPB was also reviewing “[u]nfair and deceptive practices regarding refunds for certain ancillary products.”
Most credit unions offer protection products that carry prorated refund provisions based on paying off the loan, trade in, sale or experiencing a total loss or repossession. Even if your own processes handle those situations, beware: You may be liable for protection sold elsewhere and attached to the loan.
Even then, it gets more complicated. Mileage calculations must be based on the borrowers’ driven miles – not the total mileage on the vehicle. And sometimes, lenders never request a refund. One analysis of repossessions and total losses found an average unclaimed refund of about $1,700, causing the borrower to have a larger-than-expected deficiency. The CFPB deemed it unfair, in violation of UDAAP.
Are you familiar with how your state laws treat total loss scenarios? And remember, if your credit union operates across state lines, you need to be compliant there, too. Yes, it can be a regulatory mess.
Helping credit unions navigate applicable laws is important to us. We also believe in empowering your members, especially during already challenging situations.
Remember, GAP exists to help eliminate outstanding loan balance, protecting the financial stability of both the credit union and the member. When compliance and doing the right thing by members go hand in hand, everyone wins.
To health and growth,
Joe Winn
CEO
GreenProfit Solutions
Plantation, Fla.