The Consumer Financial Protection Bureau ensures a fair, transparent, and competitive auto lending market, and takes action against harmful servicing practices. Some of these practices involve optional, add-on products consumers can purchase when they purchase a car. For example, guaranteed asset protection (GAP) products offer to help pay off an auto loan if the car is totaled or stolen and the consumer owes more than the car’s depreciated value.

The add-on product’s potential benefits apply only for specific time periods, such as four years after purchase, and only under certain circumstances. Auto dealers often charge consumers all payments for any add-on products as a lump sum at origination of the auto loan, and they generally include the lump sum cost as part of the total vehicle financing agreement. Consumers typically make payments on these add-on products throughout the loan term, even if the product expires years earlier.

CFPB examiners have focused on the way servicers handle these add-on product charges when the loan ends before the add-on product’s potential benefits end. Such early termination may happen because the consumer pays the loan off early, often through refinancing, or because the consumer was delinquent in making payments and the servicer repossessed the consumer’s car. As described in a recent report, examiners found servicers engaged in unfair practices by failing to request refunds from the third-party administrators for “unearned” fees related to one such add-on product, GAP, and failing to apply the applicable refunds to the accounts after repossession and cancellation of the contracts. At that point, the consumers didn’t have the cars that had been subject to the GAP product, and the product no longer offered any possible benefit to consumers. Examiners found servicers later sent deficiency notices to consumers and reported balances to third-party debt buyers that included these inaccurate amounts in the deficiency balances owed by consumers.

In response to these findings, the servicers remediated impacted consumers and implemented additional controls to ensure they process add-on product refunds after repossession.

Miscalculating refunds

CFPB examiners have also cited servicers for engaging in unfair acts or practices for miscalculating ancillary auto product refunds after repossession and attempting to collect miscalculated deficiency balances. For example, servicers incorrectly calculated refunds for extended warranty products or other products that had been financed through the consumers’ auto loans. The miscalculations reduced the refunds available to certain borrowers and led to deficiency balances that were higher by hundreds of dollars. The servicers then attempted to collect the deficiency balances. In response to these findings, the servicers conducted reviews to identify and remediate affected borrowers.