Ready for a CFPB Auto Finance Examination on VPP processes?
Ready for a CFPB Auto Finance Examination on VPP processes?
A consumer case study may show you are not
The CFPB, state attorneys general, and other regulators have increased their focus on lender practices for cancelling and refunding voluntary protection products (VPP), such as GAP/ Debt Waivers. Their goal is to ensure consumers are made whole at loan’s end.
When a consumer’s auto loan is terminated due to an early payoff, total loss, or repossession, the lender is often required by law to refund the consumer for unearned premiums on voluntary protection products. There are varying scenarios in which lenders may find themselves responsible for issuing a refund, but the fact remains: the CFPB is taking the position that lenders should be facilitating this process on behalf of the consumer.
All 50 states have varying requirements, and lenders must comply with these conditions for the states in which they operate. Recent regulatory actions out of Colorado have shown that lenders must focus on how they are managing their VPP cancellation and refund processes. For the regulators, VPP cancellation and refunds have become the “low hanging fruit” whereby they quickly find discrepancies in lender processes. Most lenders believe they are covered with their current process, but that is rarely the case.
We recently tested a Lender’s process, using an LCT employee’s pay-off of his truck 14 months early. The employee, based in Texas, purchased GAP coverage at the time he bought the truck. He paid off his loan on April 1, 2022 as noted by the paid-in-full letter and date of the title lien release. Per Texas state law (Tex. Fin. Code § 354.001 et seq.) the lender was required to take certain actions due to the early pay-off:
Sec. 354.007 (e)
(e) If the debt cancellation agreement terminates due to the early termination of the contract, the holder shall, not later than the 60th day after the date the debt cancellation agreement terminates:
(1) refund or credit an appropriate amount of the debt cancellation agreement fee; or
(2) cause to be refunded or credited an appropriate amount of the debt cancellation agreement fee by providing written instruction to the appropriate person.
On July 22, 2022 (113 days after payoff) – our colleague called the GAP provider and verified that the GAP policy was still in effect and no refund had been requested. To initiate the process of refunding the consumer, a lender must first cancel the existing policy. The lender was beyond Texas’ 60-day threshold to ensure the consumer had received a refund.
How can you ensure your Financial Institution has the appropriate VPP processes in place? Lenders can evaluate how effectively they are processing their VPP cancellations and refunds by taking three steps:
- Review current processes to ensure that all loans eligible for VPP cancellations are being tracked, documented correctly and have a complete cancellation and refund audit trail. A lender should be able to answer any questions from an auditor regarding this procedure.
- Build processes that allow automatic adherence to state-specific Lenders can build a more compliant and efficient process by automating their VPP cancellations and refunds.
- Invest in technology that aligns to the overall loan-servicing strategy while reducing risk. The right technology should also allow for system consolidation and cleaner data transferability.
Proactive evaluation followed by objective decision-making will enable your loan-servicing organization to get ahead of regulators and engage with VPP cancellation and refund process.
Lender Compliance Technologies (LCT) easily solves the problem of VPP cancellations and refunds with our innovative Refund ControlTM. Let LCT help determine if your VPP cancellation system is exam-ready; learn more at lct1.com or contact Tyler Gray tgray@lct1.com.
AFSA shares blog posts from Business Partners that are educative and timely for our membership. If you have an idea for a post, email Dan Bucherer, Communications Director.
August 18th, 2022 by Dan Bucherer
