Posted on July 27, 2017
by Sandy Fallon
How can providers and lenders work together to solve the problems created by an inefficient system for processing cancelations and the regulatory scrutiny it has attracted?
Dealers, agents, auto finance sources and F&I product providers share a common interest in efficiently processing canceled products and issuing refunds to consumers in an expedited manner. In addition, the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), the U.S. Department of Justice (DOJ), state attorneys general and consumer protection groups have all show interest in the way ancillary products are marketed and managed, and the CFPB has specifically stated it will target service providers that make it difficult to obtain a refund for canceled products.
Cancelation requests are increasing, and all parties have an obligation to process them appropriately. Slowdowns only delay the inevitable, create more work, and give customers the wrong impression. The current process puts an enormous burden on dealers, who are forced to spend an inordinate amount of time completing and submitting paperwork when they would prefer to be serving customers.
To solve this problem, providers and lenders can work together and move toward an industry wide digital solution to automate, standardize, ensure consistency and objectivity, remove the probability of human error and increase efficiency. Connecting product providers and finance sources on a digital platform will also eliminate paperwork and excessive phone calls to help ensure consumers receive prompt, accurate refunds. The system will also demonstrate to regulators that the F&I industry takes compliance very seriously, and that no member of our industry has any desire to deny refunds owed to consumers.
Let’s take a closer look at how the current cancelation process works and how intelligent technology connecting providers and finance sources improves upon it.
Product cancelations and refunds are mandated by regulators, but are often delayed or left unprocessed. This has led to dissatisfaction among car buyers, frustration among dealers, finance sources and product providers, and scrutiny from state and federal regulators.
Over the past six years, the CFPB, FTC and DOJ have undertaken a number of enforcement actions targeting auto finance companies and product providers. The vast majority are based on alleged violations of federal UDAP or UDAAP statutes, which forbid unfair, deceptive or abusive acts and practices. These actions have forced targeted companies to devote time and resources to respond to examination requests and adopt enhanced compliance processes. In some cases, resolution has included significant remediation and substantial penalties.
Without a shared platform, the parties responsible for processing cancelations and issuing refunds are forced to communicate by phone, fax and U.S. mail. Dealers submit their completed forms with no immediate feedback or verification. Product providers must then manually enter the data on the forms into their systems to process cancelations and issue refunds. An utter lack of communication and transparency is inherent in the current system. Phone calls, emails and faxes go back and forth, increasing costs and eroding productivity. This further slows the process and creates even more frustration and distrust among consumers.
Worse yet, if a regulatory agency or state attorney general were to investigate, they would oftentimes find little reassurance that the existing product cancelation process has the consumer’s best interest in mind. In many cases, it would be extremely difficult to easily discern the status of a given cancelation or refund. No regulator could be blamed for calling for increased scrutiny of the F&I industry. Indeed, in past bulletins, the CFPB has specifically instructed its examiners to focus on dealer-arranged financing, GAP coverage and vehicle service contracts.
Intelligent technology, while not the whole solution, is an important part of the solution. The second part of the solution involves using intelligent technology to automate the product cancelation and refund tracking process for the mutual benefit of finance sources, providers, dealers and consumers.
Implementing a standardized digital solution appropriately to automate and enforce policies, ensure consistency and objectivity, and remove the probability of human error considerably reduces the risk of regulatory noncompliance. By using intelligent technology to stay ahead of regulators, industry stakeholders can be fully prepared for examinations, all while increasing efficiency and remaining focused on managing the core business.
Providers and finance sources are under the regulatory microscope. Let’s work together and move toward a standardized digital process that can be used industrywide.
Check out the official P&A Magazine article published on July 20, 2017 here.
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