[co-author: Stephanie Kozol]
On January 4, Colorado Attorney General Phil Weiser announced that his office had reached settlements with Bellco and Canvas credit unions which will provide $4 million in refunds of unearned guaranteed automobile protection (GAP) premiums to consumers that the credit unions failed to provide previously. In June 2022, we posted here about the five prior settlements reached by the state AG over GAP refunds. Based on the AG’s comments in the press release, we expect continued scrutiny in this area. “When hardworking Coloradans pay for GAP coverage, they deserve to receive what they are owed … My office will continue to hold accountable companies that violate the law and leave Coloradans without the money they were due.”
As background, GAP is a debt cancellation product frequently sold by auto dealers to customers who finance their automobile purchases through the dealer, a type of financing arrangement known as indirect auto lending. In the event a car is totaled in an accident, the car buyer’s primary automobile insurance typically pays only fair market value, which may be less than the amount owed on the loan due to a vehicle’s depreciation. GAP is designed to cover a portion of this remaining balance or “gap” owed to the lender on the finance agreement. Because GAP is tied to the term of the customer’s finance agreement, the purchaser is often entitled to a refund of the “unused” portion of GAP if the finance agreement ends early, for example, if the buyer pays off the car loan early or if the car is repossessed. The indirect auto lender’s refund obligations vary based upon the state in which the transaction originated. A minority of states, including Colorado, place certain obligations on indirect auto lenders to ensure that a customer receives a refund of a portion of the GAP cost when his or her loan ends early, whether or not the customer affirmatively requests the refund.
Both credit unions agreed to provide pro rata refunds which totaled $4 million. If these refunds are unable to be refunded to consumers within 150 days, then the remaining unclaimed amounts revert as a payment to the state.
Both credit unions also agreed to pay $100,000, in lieu of reimbursing Colorado’s cost in investigating the matters, and agreed to permit the state to inspect the companies’ books and records related to GAP refunds for a period of one year.
As part of the Assurances of Discontinuance for Bellco and Canvas, the credit unions stipulated that going forward GAP refunds will be made on all consumer loans prepaid prior to maturity (both credit unions were already providing refunds on loans where the vehicles had been repossessed). They both also stipulated to having conducted an audit identifying those consumers potentially owed refunds during the applicable period, which they will provide to Colorado’s UCCC administrator.
Additional state attorneys general, including Massachusetts and Vermont, have scrutinized the refunding of unearned GAP premiums.
We will continue to watch the state attorneys general activity with regard to refunds of unearned GAP premiums and will post updates here as they occur.
