While these bulletins are designed to provide assistive and accurate information regarding the subject matter, Origence is not rendering legal, financial or other professional services or advice. Credit unions should seek the assistance of their legal counsel or compliance officer for their individual situation.
Over the last two decades, GAP has become a standard product in Finance and Insurance offices at auto dealerships, which is sold to consumers on nearly half of all indirect auto lending transactions. Auto dealers sell GAP to consumers to assist the consumer in paying the lender in the event of a total loss of the vehicle when the balance is greater than the value of the vehicle at the time of loss. When a credit union purchases a retail installment contract from the dealer, GAP may be part of that transaction, and there are certain assurances and obligations that credit unions may be responsible for under "holder in due course" laws. Is your credit union aware of its obligations if the loan has an early pay-off, repossession, or total loss?
State laws vary on how and when to process a GAP refund, and there is increased exposure when credit unions fail to process the refund. Currently, there is pending class action litigation by consumer advocate groups in at least two states, naming credit unions, banks, and finance companies as defendants. Credit unions should consider timely action to administer a GAP refund appropriately.
Credit unions may also consider designating a team member to oversee the application and administration of product refunds when a loan pays off or terminates early. If the host system allows, consider calculating applicable GAP refunds in all pay-off quote and pursue the GAP administrator for reimbursement.
Please contact your local Director, Lender of Client Experience for additional questions.
David M AdamsVP of Lender Client Experience
CU Direct, 18400 Von Karman Avenue, Suite 900, Irvine, CA
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This was a topic discussed at a December NAFCU webinar. With the subject continually coming up I reached out to our GAP carrier, Allied. The GAP product we sell to our members doesn't have any liability. It is filed as a non-refundable product and therefore, there isn't anything we need to do. The Debt Protection program is charged month by month so once a loan is repoed/charged off, coverage charges cease (all ok there).
Where the liability occurs is in the products we are financing for members sold at the dealership. Depending on the state of residence, there may be requirements for the lender in any pay off situation – repo, total loss, early payoff, refinance. Additionally, there's some guidance, even in the absence of state requirements in total loss or repo situations that the lender secure refunds.
My suggestion is for credit unions to reach out to your GAP carrier, they should have more information to help lenders meet the requirements. There are 28 states with requirements on the books today.
Robyn MannoneSVP/Retail LendingAPG FCUAberdeen MD410.612.2330