In response to heightened pressures, lenders are reexamining their current practices for providing accurate and timely refunds to their borrowers. Many are making an effort towards in-house processes to maintain compliance while reducing costs. However, while seemingly more affordable, this approach comes with its own set of challenges and risks. Complicated workflows involve multiple departments and depend on specialized resources, knowledge, and technology to succeed. When timing and precision are key for compliance, inefficiencies can lead to errors and delays you can’t afford.
Scrutiny from a complex, dynamic regulatory environment is straining resources all while financial institutions nationwide are experiencing ongoing staffing challenges and siloed technology, resources, and processes that are creating additional obstacles.
Let’s focus our attention on identifying the challenges and what can be done.
The findings presented in the Fall 2022 Supervisory Highlights (PDF download) by the Consumer Financial Protection Bureau (CFPB) emphasized their ongoing focus on ancillary product refunds, marking the fourth instance in the past three years where they have provided guidance on this matter. This repetition sends a clear message to financial institutions that this issue will remain in the regulatory spotlight. It is essential to recognize that state laws are continuously evolving in response to these concerns. Recent examples include the enactment of California Assembly Bill 2311, which introduces new requirements for the sale and administration of Guaranteed Asset Protection (GAP) products. As well as Colorado Governor, Jared Polis’ Colorado House Bill 23-1181.
Trusted and Proven Compliance Infrastructure:
Outsourcing compliance-heavy processes to a provider with the knowledge and resources to stay ahead allows financial institutions to improve compliance and stay up to date with evolving regulations and litigation. Relying on a trusted and proven compliance infrastructure, institutions can mitigate compliance risks and ensure adherence to changing requirements.
Enhancing Compliance for Product Cancellations:
Outsourcing product cancellations through a comprehensive solution like RefundPlus improves compliance related to cancellations while freeing up staff to focus on other crucial priorities. By entrusting thorough dealer follow-up and leveraging a Lockbox system that validates, logs, and compiles refund payments, financial institutions can enhance accuracy, reduce turnaround times, and provide a seamless experience for customers.
Streamlining GAP Claims and Refunds:
Through a single outsourced solution, financial institutions empower themselves to ensure borrowers receive the greatest benefit from their claims or refunds. By consolidating these processes, institutions can simplify administration, improve customer service, and expedite the resolution of GAP claims, resulting in greater satisfaction for borrowers.
Financial institutions are facing ongoing staffing challenges that strain their ability to effectively manage recovery claims. While some lenders opt for in-house processes to reduce costs, the extensive time, resources, and technology required make it a complex endeavor. However, cross-training staff to handle recovery claims alongside other responsibilities carries risks, as they may lack expertise in GAP waiver language and struggle with understanding different coverages, leading to delays and errors that negatively impact borrowers and the institution's brand. Additionally, the ever-changing regulations and litigation at the state and federal levels add to the challenge of keeping pace. Even if there is currently available bandwidth within the staff to handle recovery claims, the dilemma arises as business returns to normal, and the overwhelmed team must continue performing both roles or the institution needs to hire and train a new team, which entails additional time and expenses while existing staff struggle to keep up.
Lenders can alleviate their administrative burden and enhance compliance by outsourcing product cancellations and claims to a reliable provider. By leveraging the expertise of a specialized team focused on optimizing recovery claims, lenders can benefit from their knowledge and experience. These teams also have access to internal and external legal counsel to monitor regulations at both the state and federal levels. Lenders can save time and costs by managing a single partner instead of maintaining an entire in-house staff.
Experienced GAP Provider:
Working with a partner who possesses extensive knowledge and experience in managing GAP claims offers financial institutions the opportunity to enhance compliance and efficiency in this critical area. Leveraging the expertise of an experienced GAP provider can streamline processes, reduce errors, and optimize the handling of GAP claims, ultimately improving operational outcomes.
Specialized Recovery Claims Resources:
Partnering with a provider who has experience, dedicated staff, advanced technology, and specific resources for optimizing recovery claims can lead to exceptional results. These specialized recovery claims resources enable financial institutions to streamline processes, increase recovery rates, and navigate the complexities associated with recovering funds effectively.
The fragmented processes and resources involved in managing recovery claims internally are hindering efficient operations. Lenders face challenges with disconnected platforms, such as the Loan Origination System, Imaging System, and Customer Management System, which often lack integration and are handled by separate departments. This lack of communication and coordination makes it hard to streamline workflows, leading to increased risks of errors and delays that can have adverse effects on borrowers and the lender's brand.
Single Provider for Recovery Claims:
Integrating recovery claims processes through a single provider yields significant benefits, including key efficiencies and cost savings. By consolidating recovery claims management, financial institutions can streamline operations, reduce complexities, and achieve consistency. This approach also simplifies coordination, leading to improved communication and faster resolution of recovery claims.
Flexible Recovery Claims Solutions:
Financial institutions can select from a variety of recovery claims methods and solutions to tailor their programs to meet specific needs. By leveraging flexible recovery claims solutions, institutions can optimize their recovery strategies, choosing the approaches that best fit their requirements and maximizing recovery outcomes.
The Supervisory Highlights by the CFPB emphasize the continuing focus on ancillary product refunds, indicating the importance of compliance and evolving state laws. Financial institutions can enhance compliance efforts, improve efficiency, and save costs by outsourcing compliance-heavy processes, partnering with experienced providers for GAP and recovery claims, and streamlining product refunds through comprehensive solutions. This approach ensures adherence to changing regulations, simplifies operations, increases recovery rates, and provides a seamless customer experience. By implementing these strategies, institutions can navigate the regulatory landscape effectively, prioritize consumer protection, and focus on core competencies and strategic initiatives.