The auto finance market has experienced an abundance of challenges over the last 24 months. The demand for used vehicles spiked in the aftermath of chip shortages, OEM shutdowns, and major labor shortages. Last year’s government forbearance led to a lack of repossessions and delayed lease terms, which generated the perfect storm of events culminating to new and used inventory shortages and repossession agent shops going out of business.
Although the current conditions are changing by the day, the overall outlook is seemingly stagnant through next year.
Here are 3 key predictions for auto finance in 2022:
- Delinquencies and repossessions are anticipated to remain static over the next 12 months
- Used car values are not expected to decline until late 2022-2023
- New car supply on lots now are basic units and have market adjustments of several thousands of dollars (this poses a threat to GAP after 2022)
There is also additional regulatory pressure surrounding the accuracy and timeliness of consumer refunds on voluntary protection products (VPPs), or ancillary products, that those in the auto finance industry need to stay judicious about.
Product refund liability is the financial liability owed by a lender/dealer/administrator to a consumer for the refundable portion of a contract or product coverage purchased at the time of an auto loan. These products are often known as voluntary protection products. When a loan with a vehicle protection product attached does not meet maturity, a refund of the unused portion may be applied to a deficiency balance or refunded to the borrower. Further, some estimate that more than 50 percent of loans are paid off early and of those loans, more than 60 percent have ancillary products tied to them. When a vehicle is paid off, sold, or traded in and there are ancillary products attached to the loan, there is an obligation to ensure the refund is paid to the consumer.
Examples of ancillary product:
- Guaranteed Asset Protection (GAP)
- Credit Insurance (Life, Disability, Involuntary Unemployment, Credit Property, Single Premium AD&D)
- Vehicle Service Contacts (Extended Warranty, Tire and Wheel, Mechanical Breakdown Protection)
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The scrutiny around product refunds continues, and as such, lenders need to be prepared with the right partner and the right technology. Benefits of an established product refund liability program include:
Maintain compliance
Across all financial institution markets the liability, timeliness, and accuracy of product refunds are being called into question. Lenders face increased vulnerability due to changing state guidelines and targeted class action litigation on refund responsibility. By implementing a comprehensive refund strategy and infrastructure around ancillary products, financial institutions can help mitigate regulatory and reputational risk by including all necessary parties, from legal to operations and accounting, to identify areas of risk exposure and examine where risk can be mitigated.
Gain control of the refund process
Taking control of the borrower experience allows lenders to remain proactive. Removing the dealership or product provider as an intermediary helps shorten the process and ensure that a consumer receives their refund within a compliant timeframe. Choosing an expert vendor partner to oversee the process can transfer the operational infrastructure and optimize the process by ensuring an audit trail and providing updates on changing compliance requirements.
Recover refunds faster
With technology to support product refunds, lenders can improve on dealer and provider communications regarding the filing of cancellation requests and the processing of monies.
Improve audit trail of entire refund process
Transparency in this process is no longer a luxury. It provides increased accuracy and in the evolving and stringent regulatory landscape, there is little room for unclear ownership, inaccurate tracking, or calculation errors.
Avoid delays and errors in refund remittance
Data integration is invaluable, and the right technology infrastructure uses this data to calculate refunds, track due dates, and validate consumer receipt.
Ensure refund accuracy
Automation reduces errors through calculated formulas, customized reports, and reduced touchpoints between parties.
Regulation continues to evolve. Some state regulations require that all GAP waivers sold must be refundable, yet even in states with no such regulation, there is legal action being taken. And while the CFPB has amplified their efforts with audits and business reviews targeting UDAAP violations and consumer sensitivity, predominantly regarding the cancellation environment, financial institutions are still navigating internal hardships.
Now more than ever, financial institutions will need to embrace best in class technology solutions. From data integration for cancellations and refunds to technology that validates accuracy and timeliness of consumer refunds, automation can minimize errors with calculation formulas, customized reports, and reduced touchpoints, while providing an auditable trail.
In the financial and regulation space, ‘doing the right thing’ has become the new decree. Establishing a product refund process prioritizes and protects consumers while providing improvements to customer experience and mitigating financial institutions’ legal risks. Allied can help financial institutions embrace an end-to-end product refund liability process to maintain compliance, improve customer experience, and ensure efficiency and accuracy within the organization.
Download the resources: https://www.alliedsolutions.net/solutions/refund-plus