Dealerships today rely heavily on F&I aftermarket products to stay profitable, with industry totals around $77 billion at retail. However, about 25% of these sales are cancelled before term end and the responsibility to issue the cancellation refund to the consumer falls to the lender.
When there’s a need to cancel or terminate aftermarket products early, either the lender or the borrower can begin the process and receive prorated rebates of the premium amounts for the unused portion of the products. In instances where there’s a total loss, default, or repossession, the lender receives the portion of the rebates necessary to cover any deficiency balance, and the borrower gets any remaining funds.
Without a standardized process for handling these cancellations and rebates, they can become an increasing burden for lenders.
Best Practices for Aftermarket Cancellations
Here are three key areas to focus on when establishing processes:
- Accurate Refund Amounts – It’s important to calculate refunds using the correct parameters. For instance, if mileage is part of the calculation, the lender must use the net mileage driven since purchase to correct determine the refund amount. Some state regulations specify the calculation that must be used to determine the total refund due.
- Transparency – The average borrower may not even be aware that rebates are available for their aftermarket products, much less know to request them. Because the lender also has the ability to request these rebates, they are expected to include the rebate amounts in their reporting or disclosure of the final deficiency balance to the borrower. It is illegal for a lender to mislead a borrower to think that their reported deficiency balance is final if there has been no rebate requested.
- Speed and Timeliness – Cancellations are expected to be processed and refunds issued in a timely manner. The Consumer Financial Protection Bureau (CFPB) does not specify what is meant by “timely,” but many state regulations do provide time frames as brief as 30 days between the time of the cancellable event and when the refund is issued.
Putting A Solution in Place
Ideally, dealers, aftermarket providers and lenders should all be equally motivated to do right by consumers. From a regulatory standpoint, it’s lenders who are required by law to manage aftermarket product cancellations and the refund process. In fact, 46 states currently have regulations in place mandating this responsibility.
When you’re looking for a technology solution to help with these processes, we recommend looking for one that:
- Accommodates all lenders, all service providers, and all selling dealerships.
- Allows for preparing and filing cancellations directly with providers and dealerships.
- Establishes a standardized process for payoff and non-payoff/default cancellations.
- Tracks the process in real-time and provides access to account monitoring, report management, and analysis.
Want to learn more about how to streamline your process for aftermarket cancellations and refunds? Stop by Booth #104 at AFSA, February 12-14, 2020.
