Navigating the Compliance and Due Diligence Front

 Navigating the Compliance and Due Diligence Front 

Produced By Sergio Moreira, Director of Risk and Recovery & Peter Krall, Vice President of National Markets Group | October 1, 2019

Did you miss our webinar on October 1? Catch up here.

“Every state has different processes that regulators look at, so it’s important for lenders to stay up to date on these changes and ensure that consumers are receiving refunds on time. We have to work together.”

Allied’s Director of Risk and Recovery, Sergio Moreira , led a webinar with Allied's Vice President, Peter Krall, on changing compliance and aftermarket strategy. The duo reviewed ongoing market conditions, information about changing compliance and regulations, and provided tangible strategy tactics to consider. Because of the changing compliance landscape it is important for lending institutions to think proactively and plan ahead to 2020 and beyond.

Below we highlight the main points shared during the webinar. 

Watch the Webinar: Navigating the Compliance and Due Diligence Front

Market Conditions in 2019

Consumers are facing increasing costs when it comes to both insurance premiums and vehicle prices,yet more cars than ever are on the road. . Allied Solutions reached out across the industry to learn more about what solutions lenders are currently seeking. We wanted to understand the needs and challenges facing the market. Especially with changing regulatory factors it’s becoming increasingly important for lenders to find an auditable, compliant option that consumers are excited about.  

1. Current Auto Portfolio 

Consumer behavior tends to gravitate toward an affordable monthly payment, which usually translates to a longer loan term. This means car buyers are paying more for their car over a longer time period, which, in part, is fueling a rising need for ancillary products that provide further purchase protections in case of service needs, total loss, or other triggering factors that lead to the termination of a loan contract.

2. Ancillary Product Trends

Increasing costs are leading consumers to buy additional protections with their purchase. This is creating a growing industry segment seeing consistent annual growth year over year with millions of products sold nationally. However, while the consumer primarily handles the purchase through their dealer, there are actually multiple stakeholders at play. Many products that are sold to consumers are actually funded by the lender and operated via a provider, which has drawn regulatory scrutiny from organizations such as the CFPB.

3. Market Opportunities Ahead

Due to the growing ancillary product market, consumer spending behaviors, and changing regulations, there’s an increasing need for a less complex, audited product refund liability system that is triggered when key events occur that lead to the termination of the loan. Triggered key events could include things like total loss, repossession, early loan pay-off, or trade-ins. Current regulatory guidelines put pressure on the lender to process the refunds within a specified period of time, and this could impact refundable products such GAP, credit life and disability, or other vehicle service products available to consumers by the dealership.

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Compliance & Oversight

Very few lenders have the infrastructure to handle the complexity of the refund process, but there is increased scrutiny on lenders to handle and process the cancellation and refund of a product. Remaining compliant is difficult for lenders due to the regulation of ancillary vehicle products varying widely by both state and product type. Many states have separate licensing and financial security requirements that apply to various auxiliary products. Changing regulations makes an already lengthy, difficult process, more complex among all stakeholders: consumers, lenders, dealers, and providers.

This transition has led to industry challenges such as:

  • Consumers not receiving their refunds
  • Consumers receiving the incorrect refund amount
  • Consumers not receiving the refund in a timely manner
  • Lenders incorrectly reporting deficiency balances
  • Dealers and lenders facing incorrect invoicing or chargebacks


4 Strategy Tactics

Lenders need to understand how to keep up with regulations and also how to maximize efficiencies. During the webinar, we shared four practical tactics to get started.

Tactic #1: Determine Accuracy 

To help assess and improve accuracy, consider a thorough review process to ensure information is being verified by the dealer or provider, and that audit points are being established for quality control. This could include a shift to electronic processing. The bottom line is that lenders need to build a consistent, accurate, documented, and transparent end to end process for the cancellation or claim filing of key ancillary refundable products.

Tactic #2: Re-Evaluate Timeliness 

 Make sure you’re reviewing regulatory requirements in your state. Then establish service timelines for all triggering event types. This should also include a communication strategy with both the providers and dealers to process status updates and an acknowledgement of refund for audit purposes.

Tactic #3: Streamline Processes

 To better streamline a complicated process, review how information is processed and consider moving hardcopy paperwork to an electronic form that can be more easily shared between lenders, providers, and dealers. Evaluate where data is being lost.

Tactic #4: Collaborate with Providers 

Changing regulations don’t just impact lenders. Make sure to engage with all stakeholders and review all stakeholder obligations in order to better collaborate. Ask questions, document the process, and establish a communication strategy with internal and external stakeholders to help improve your aftermarket processes.

The final takeaway: “It’s imperative to ensure that your consumers are made whole under your governing law. As we look ahead to 2020, ensure that following up with the end consumer is top of mind.”

Want to Learn More? Make sure to check out our session at Used Car Week 2019 with Senior Vice President, Anne Holtzman.

Developing Compliant Refund Strategies

About Allied Solutions

Allied Solutions, LLC is one of the largest providers of insurance, lending, and marketing products to financial institutions in the US. Allied Solutions uses technology based products and services customized to meet the needs of 4,000 clients along with a portfolio of innovative products and services from a wide variety of providers. Allied Solutions maintains over 16 regional offices and service centers around the country and is a subsidiary of Securian Financial Group, Inc.

Content in the blog posts are the opinion and views of the writer, and don't necessarily reflect the opinions or views of Allied Solutions.

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