This feature was originally published in CUToday Quarterly
Predictive forecasting anticipates a rise in auto loan defaults due to the resumption of student loan payments, increasing delinquencies across all product categories. This poses challenges for voluntary vehicle protection products (VPP), leading to more frequent premature auto loan terminations and/or voluntary product cancellations at the request of the borrower to avoid financial strain, both of which can potentially lead to subsequent refunds for unearned coverage.
Regulators are scrutinizing financing practices, leading to significant penalties, including a Consumer Financial Protection Bureau (CFPB) directive for some lenders to pay up to $3.7 billion for various violations, emphasizing the need for transparent and compliant refund processes.
Much of the controversy centers on lenders' handling of GAP refunds, with some claiming refunds are only provided in states where legally mandated. The CFPB, in theory, could contest this, citing location-based discrimination. The CFPB’s enforcement expansion [2022] of Anti-Discrimination through UDAAP alone should serve as a major red flag to lenders. Add to that a surge in state laws, accountability settlements, and a heightened focus on overcharging and refund miscalculations all signify a broader issue—an evident “gap” in understanding and a means to comply (and perhaps the urgency for correction).
The CFPB's consistent efforts against unfair practices highlight the importance for lenders to examine their refund processes and ensure a compliant process, particularly as more states contemplate GAP refund legislation. If your lending institution hasn’t done so already, it’s time to innovate with integrity.
New Year, New CU
Financial hardship can be prevented with the proper information and strategic planning. Instituting a comprehensive strategy enables faster, precise transactions, empowering credit unions to deliver optimal service.
As they say, the struggle is real. The challenges of in-house development, including regulatory exposure, resource requirements, and the establishment of transparent, audit-ready refund processes, are significant. However, regulatory bodies and the CFPB do not account for these factors. This highlights the urgency of adopting an efficient and compliant product refund process with strategic partnerships, innovation, and integrity for all.
"It is not the strongest of the species that survive,
nor the most intelligent, but the one most responsive to change."
- Charles Darwin
Darwin's wisdom holds true. This principle resonates in our approach to challenges, such as those encountered in product refund liability. Similar to Darwin's insight, Epictetus, a Stoic philosopher, highlighted the significance of our responses to external events in shaping our well-being and character.
Credit unions must distinguish themselves by navigating the dynamic financial regulatory landscape with a focus on integrity and innovative solutions. How will your credit union be known? By your resilience, ethical responsiveness, and unwavering commitment to the well-being and financial success of your members? We certainly hope so.