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Guaranteed Asset Protection (GAP) Refunds / Indirect Lending

  • 1.  Guaranteed Asset Protection (GAP) Refunds / Indirect Lending

    Posted Dec 15, 2020 05:53 PM
    Good Afternoon Everyone,

    What are your thoughts in relation to the communication that I included below. It has always been my experience that the dealer and/or issuing company along with the member held responsibility for requesting and processing GAP refunds. Have any of you taken steps in regard to this? I'm having difficulty in obtaining any clarification on how this impacts us and what actions, if any, we should be taking to stay compliant.

    Thank you,

    Shawn Hochstein

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    Lending Services Bulletin
    November 10, 2020

     

    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. 

     

    Guaranteed Asset Protection (GAP) Refunds

    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.

     

    What can your credit union do?

    • First and foremost, consult with your legal counsel and compliance department.
    • Identify incoming and current loans with GAP as part of the transaction.
    • Track the GAP administrator and underwriter for each policy that is part of the transaction.
    • Understand how your state laws, GAP policy language, and loan status apply to each refund.
    • Notify the member and apply the refund.
    • Consider a 3rd party solution to fully manage the tracking and refund process.

    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 Adams
    VP of Lender Client Experience 

     

    CU Direct, 18400 Von Karman Avenue, Suite 900, Irvine, CA

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    Shawn Hochstein
    Consumer Lending Manager
    AEA FCU
    Yuma AZ
    928.783.8881
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  • 2.  RE: Guaranteed Asset Protection (GAP) Refunds / Indirect Lending

    Posted 19 days ago

    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 Mannone
    SVP/Retail Lending
    APG FCU
    Aberdeen MD
    410.612.2330



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    Robyn Mannone
    VP/Retail Lending
    APG FCU
    Aberdeen MD
    410.272.4000
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