Financial organizations are now facing new regulatory burdens associated with administration of consumer refunds for aftermarket and ancillary products purchased on top of their loan contracts through dealers.
Although it is unclear exactly where the regulators are going to land consistently on this issue, it is clear that the past practice of relying on dealerships and consumers to effectuate their own product cancellations and refunds will undergo more scrutiny and regulation. As such, the responsibility to perform these tasks will likely shift to the financers of these vehicle loans.
What’s the deal with aftermarket product cancellations and refunds?
Lately, sales of aftermarket products like GAP, MBP, and credit insurance have been facing a lot of scrutiny from state and federal regulatory bodies like the CFPB and FTC.
In the past, dealerships were largely responsible for handling any aftermarket product cancellations and refunds because dealerships owned the relationship with the product carrier. Today, the burden to perform these cancellations and refunds has largely shifted from the dealers to the lenders.
This liability shift from dealer to lender can be largely attributed to three key factors:
- Many consumers fail to request these refunds on their own.
- Dealers may not have a fail-safe process for ensuring that each refund requested is consistently delivered to consumers in an accurate and timely fashion.
- Lenders face stricter legal accountability to consumers under state and federal laws, such as the Dodd-Frank Act.
What does this mean for lending institutions?
Since lenders are going to be held more accountable for managing the growing number of aftermarket product cancellations and refunds, those handling these processes will also be expected to quickly and efficiently take on the following burdens:
- Quickly reform their internal practices for cancelling products on all dealer loans.
- Manage cancellation and refund processes in a way that maintains friendly consumer practices while protecting relationships with dealers.
- Attempt to find a way to operationalize the product cancellation service.
- Keep records that prove all product refunds were accurately and quickly sent to and received by consumers.
- Carry out processes that are supported and approved by regulators to avoid legal scrutiny.
- Maintain compliance with state and federal law.
But wait, there’s more!
Efficiently adopting these new practices requires that lenders work with a significant number of dealer networks as well as insurance and product providers. The tangled web of involvement by dealers, product providers, and insurers makes it quite difficult to operationalize and streamline these practices, which is why the industry has not yet produced a solution that delivers aftermarket cancellation and refund processing from start to finish.
That being said, there is still a lot lenders can do to handle these processes more quickly and painlessly.
What do you need to do to ensure the best outcome for your business?
Quick and painless: These are the key words to remember when dealing with aftermarket product cancellations.
In other words, processing these cancellations and refunds needs to be quick and painless for your lending institution, while also being quick and painless (i.e. consumer friendly) for your consumers, and quick and painless for your dealer networks.
These refund processes should also be carried out in a way that you can retain proof of the accuracy and timeliness of the refunds to consumers, thereby making this a quick and painless process for regulators, which will bode well for your lending institution.
The most fool-proof way to ensure aftermarket product sales cancellations and refunds are processed quickly and painlessly for your business, consumers, and dealers is to set some time aside to determine how your financial institution wants to handle these – i.e. do you want to perform these duties in-house, or do you want to outsource them to a qualified third-party vendor to perform these duties on your behalf.
Outsourcing product cancellations and refunds to an experienced partner is arguably the smartest way to handle these processes because they are best suited to guarantee the following outcomes on behalf of your institution:
- Compliance with all regulatory rules and standards
- Fast & efficient refunds issued to consumers
- Paper trails proving when and how refunds were processed and received
- Timely cancellation notices sent to dealers and product providers
- Simplified & streamlined process handling from beginning to end
- Detailed audit trail and archive of transactions
- Reliable consultation throughout the entire lifecycle of this process
The main takeaway is this: Don’t wait to plan out how you want to handle aftermarket product cancellations (and all of the regulatory hoopla that comes with it). Be proactive, do your homework, and know your options - only then can you ensure you’ll be well-equipped to handle these processes with confidence and relative ease, should the time come.
Contact us to learn more about how we can help you to handle these processes with care and ease.
Learn about our current aftermarket product cancellation services and other risk management programs.
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This blog post is intended for informational purposes only and should not be construed as legal advice. The information contained in this post may not reflect the most recent developments with regard to the law. You should consult your own legal counsel for specific advice regarding your particular situation.