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  1. Resource Center
  2. Allied Insights
  3. What FIs Need to Know about Product Refunds and Automation

What FIs Need to Know About Product Refunds and Automation

  1. Resource Center
  2. Allied Insights
  3. What FIs Need to Know about Product Refunds and Automation
By Allied Solutions,
April 10, 2024
The management of vehicle protection product refunds is a complex, manual process. This blog lays out some hurdles, misconceptions, and solutions for FIs as they manage product refund liability. 

Class action lawsuits against large, well-known lenders are bringing increased attention to ancillary product refunds (like GAP, Tire & Wheel, and AD&D.) Despite the many challenges of managing these product refunds in-house, the legal and reputational risks are raising the stakes for how FI’s internally accept ownership of the refund process. 

 

4 Hurdles of Internally Managing Product Refunds
  1. Finding Talent: Labor rates make it more costly than ever to hire top talent. Across the industry it is increasingly difficult to source and retain human talent. Managing the product refund process typically requires one full-time employee per 200 product cancellations per month. The more loan volume your portfolio holds, the more FTEs required to stay current on refunds. 
  2. High level of knowledge: If you can find the talent, employees must then be trained to manage product refunds. This requires a high level of working knowledge, and many FI managers aren’t well-versed in it to provide adequate training. 
  3. Compliance concerns: Regulatory pressures from the CFPB and other state regulators continue to escalate, bringing enormous fines and brand damage. FIs are in a precarious position, balancing the shifting regulatory guidance with the borrower experience. Anything but a fully compliant product refund process places financial institutions at increased reputational and financial risk. 
  4. Manual processes: Manual, or even semi-manual, processes can cause inefficiencies, tie down human resources, and distract from more productive business tasks. Manually calculating and processing refunds creates more opportunities for errors and delays. Sloppy, non-strategic processes won’t be audit-worthy. 

And still – despite these hurdles, regulatory liability, borrower obligation, and refund timeliness are proving that it’s no longer acceptable for financial institutions to assume that dealers and product providers will manage this process. Plus, the CFPB and state regulators are keeping a close eye on FIs that have holes in their refund process. 

 

So, you might be asking: "How can our FI take on such a complicated process when it is already difficult to find and retain talent?"

If you are asking this question, you can bet that hundreds of other FIs are as well. 

 

AI is the Answer

Complex, data-driven processes like product refunds are the ideal use case for AI. 

Unlike manual processes, automated product refunds require less cross-departmental oversight and can be programmed with rules for handling refunds in multiple states. 

Automating the management of product refunds does the work of full-time employees while still giving financial institutions the control over the process. Product refund automation not only eases the workload on staff, but also reduces errors in the refund calculation process that could be revealed in an audit.

What product refund automation accomplishes:

  • Light administrative workload
  • Faster refunds recovered and remitted to the borrower
  • Better regulatory compliance with UDAAP
  • Refund accuracy 
  • Increased borrower satisfaction

 

Take Control of Product Refunds

It is a common misconception that managing product refunds in-house will reduce costs. However, the bottom line cost is high to hire and train talent and build a compliant, efficient process to manage the process. The consequential costs of mis-managing the process may be higher - both financially and reputationally. 

With a fully automated product refund management platform, your financial institution can take control of the product refund process without burning out existing staff, hiring new talent, or risking red flags on an audit.  


Is your financial institution ready to take control of product refunds? Find out how.

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