Ally Takes Control of GAP Refunds
October 11, 2017
DETROIT — About a week before allegations surfaced that Wells Fargo failed to properly refund borrowers who purchased GAP from its dealer services business unit and paid off their loans ahead of schedule, Ally began enforcing a new policy that instructs its dealer partners not to handle GAP refunds directly with customers.
Ally announced its new policy on June 27. A reminder memo obtained by F&I and Showroom (Auto Dealer Today's sister publication) was then issue on Oct. 10. It states that, for early retail account payoffs received on or after Aug. 1, 2017, Ally will directly refund the unearned portion of GAP waivers and insurance to customers within 45 days of the paid-in-full date.
“As previously announced on June 27, 2017, Ally implemented a process to ensure that all Ally customers who prepay their auto finance contract in full prior to maturity, promptly receive the GAP refunds they are entitled to,” the memo reads, in part. “When an account is paid in full early, Ally will forward a digital notice to alert the dealership of the early payoff and that the customer may be entitled to a GAP refund.”
When that digital notice is received, dealers have 15 calendar days to review their records and inform the finance source if the GAP refund was already remitted and used toward a down payment on a new transaction or if the GAP contract was previously canceled at the customer’s request.
If the dealer fails to respond within 15 days, Ally will debit the dealer’s reserve account for the refund amount and a $10 administrative fee. The finance source will also fax a dealer chargeback letter notifying the dealer of the early payoff, the GAP refund amount and the administrative fee.
If the GAP refund hasn’t been remitted, dealers must notify the product’s administrator to cancel the GAP policy and have any refund forwarded to the dealership, not the customer. Ally will then issue the customer the refund. If the refund was used as a trade-in credit, Ally will debit the dealer’s reserve account for the refund amount plus the $10 administrative fee.
The new policy took effect just prior to an Aug. 7 report in The New York Times that revealed Wells Fargo was facing new regulatory scrutiny for not issuing GAP refunds. The report noted that tens of thousands of Wells Fargo borrowers may have been affected. Jennifer A. Temple, a Wells Fargo spokeswoman, told the newspaper that the bank was still assessing how many customers had been affected, noting that the bank had instituted improved controls on the refund process in 2014.
“We are reviewing our practices and actively working with our dealers and have already begun making improvements to the GAP refund process,” Temple’s statement read, in part. “If we find customer impacts, we will make customers whole.”
In June 2015, the Consumer Financial Protection Bureau released its updated Auto Finance Examination Procedures. It included a section on ancillary products, establishing that GAP, vehicle service contracts and add-ons are subject to review by CFPB examiners. It also instructed examiners to determine “how the servicer monitors optional products attached to loans or leases, including canceling the products in a timely manner, where applicable.”
State laws vary on how GAP refunds are regulated. Nine states require providers to return unearned portions of GAP waivers or insurance, including Alabama, Colorado, Indiana, Iowa, Maryland, Massachusetts, Oklahoma, Oregon, and South Carolina. However, may state laws don’t address the GAP refund process at all.
An Ally spokesperson said it is not uncommon for creditors in states without GAP laws to notify customers of GAP refunds and direct them to contact their dealers or GAP administrators, noting that Ally “elected to implement a nationwide process” to ensure customers receive those refunds. The FAQ section of Ally’s new policy, however, makes clear that regulatory oversight also played into the new requirements.
“Based on Ally’s commitment to ‘do it right’ for our customers and in light of increasing regulatory focus on voluntary protection products such as GAP, Ally has elected to implement a process to ensure that all Ally customers who prepay their auto finance contracts in full receive the GAP refunds they are entitled to.”