In 2019, the CFPB listed auto loan servicing as an area of focus and oversight to examine “unfair, deceptive, or abusive acts or practices.” Currently, the regulation of ancillary vehicle protection products varies widely by state and product. The CFPB’s announcement identifies both ancillary product cancellations and refunds, and refunds after a repossession or total loss as specific areas of interest.
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What Does This Mean For Lending Institutions?
As it currently stands, few lenders have the infrastructure to handle the complexity of the refund process, but lenders are facing increased scrutiny to handle and process the cancellation and refund of a product. Remaining compliant is difficult due to the varying regulations by both state and product type. Changing regulations makes an already lengthy process more complex among all stakeholders.
There is an increasing need for an audited solution, beyond simple automation, that provides an efficient cancellation process for RIC (Retail Installment Contract), product contracts, triggering events (i.e., repossession, total loss, re-fi, early payoff, etc.), and last reported mileage.
4 Things to Know About Product Refund Liability
- Product Cancellations and Refunds are Complex Processes
In the past, dealerships were largely responsible for handling any aftermarket product cancellations and refunds because they owned the relationship with the product carrier. Today, the burden to perform these cancellations and refunds has largely shifted from the dealers to the lenders. Yet, lenders will still need to work with a significant number of dealer networks, insurance providers, and product vendors to process the cancellation and refund. - Regulatory Guidelines Put Pressure on Timelines
An important aspect of the refund process is how long it actually takes. Regulators are considering consumer-friendly practices. In other words, processing these cancellations and refunds needs to be quick and painless for your lending institution, while also being quick and painless for your consumers (i.e. consumer-friendly), and quick and painless for your dealer networks. Make sure you’re reviewing regulatory requirements in your state. Then establish service timelines for all triggering event types. - Accuracy Helps Ensure Information is Verified
If information is not accurate consumers may not receive their refunds, receive the incorrect amount, or receive a delayed refund. Lenders may also incorrectly report deficiency balances. Additionally, dealers and lenders could face incorrect invoicing or chargebacks. A thorough review process is necessary to ensure information is being verified by the dealer or provider, and validate that points are being established for quality control. - Communication Among all Stakeholders is Key
Creating a timely, accurate cancellation and refund process means collaboration between all stakeholders: providers, dealers, consumers, and lenders. Manage cancellation and refund processes in a way that maintains friendly consumer practices while protecting relationships with dealers. This calls for acknowledgment and follow-up processes with dealers and providers to maintain relationships and hold accountability.
The main takeaway is this: Don’t wait to plan out how you want to handle aftermarket product cancellations (and the regulations that comes with it). Be proactive, do your homework, and know your options, so you’ll be well-equipped to handle these processes with confidence.
Consider working with a vendor to optimize the product refund process. Contact us to learn more about our risk management services: alliedsolutions.net/contact-us.
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