Best Practices Guide to Gap Cancellation
Your GAP cancellation and refund Best Practices Guide to save your reputation and bottom line.
The role of lenders in the GAP cancellation and refund process has changed dramatically in recent years. Many regulators at the state and federal levels are now holding lenders responsible for refunding consumers or at least ensuring the refund has been made.
The primary hurdle for lenders is current laws regulating GAP cancellations and refunds can vary by state, and they often differ from federal regulations, leaving lenders without a clear path to compliance.
As a result, lenders can suffer not only fines and remediation measures but also reputational harm from bad practices or the lack of transparency in their processes.
So how can lenders increase their compliance?
For starters, lenders should take a systemic approach to GAP cancellations and refunds, where every aspect of their deal funnel is optimized to address problem areas. This should include:
Dealer Intake & Dealer Agreements
- Make sure your dealer agreements include language for cancellations.
- Perform due diligence on dealers’ products and providers as required by state-specific compliance.
- Consider dealer reserve or short funding as an option.
Originations & Funding
- Document and track providers at time of funding.
- Review contract packages for correct providers and contract data. All pages, if possible.
- Require documents for any dealer-related transaction.
Servicing & Cancellation/Refund Operations
- Track accounts with products to cancel them efficiently.
- Be prepared to meet different requirements as laws vary by state.
- Be able to prove compliance from cancellation to refund.
At the same time, lenders need to address their specific practices (or lack thereof ) when it comes to GAP cancellations and refunds themselves. Here’s a look at four best practices that will help keep lenders compliant and protect their relationships with dealers and providers.
- Don’t rely on dealers to manage the cancellation process. State-specified timelines require lenders to act directly and quickly. Transparency is also essential to success, and proof of refund is often required by regulators.
- Calculate and track refund estimates.
Calculate the refund based on contract details, and validate your refund calculations and cancellation fees for compliance with providers. Then, document variances in detail to answer potential questions from auditors. - Develop a uniform and consistent process.
Lenders should ensure they’re following the same cancellation and refund process for all cancellation types (payoff, repose, and total losses). Regulators should be able to pull a sample of a lender’s loans and see all the loans are being treated equally in the same manner. - Track and report on the full process from cancellation to final resolution.
Reporting is required to run a compliant voluntary product protection (VPP) cancellation process, because it reveals operational issues. Lenders also need to monitor all compliance and revenue key performance indicators (KPIs) by state, product, and dealer.
The best technology makes lender compliance easier.
Realistically, the complexities of GAP cancellations and refunds require lenders to leverage software to protect their businesses. Doing everything manually opens the door to costly errors. It also costs time and resources. Compliance software, on the other hand, streamlines processes, helps lenders work more efficiently and mitigates non-compliance automatically.
Refund Control from Lender Compliance Technology (LCT) is the perfect example. It’s a complete, audit-ready solution designed specifically for lenders by experts in lending, recoveries, and compliance. It uses industry practices and a forward-thinking roadmap to make it easier for lenders, regardless of size, to stay on the right side of both state and federal regulations.
To learn more and see how LCT puts lenders in control, contact Tyler Gray at (817) 725-8340 or email Tgray@lct1.com.