Aftermarket Products are optional add-on products that dealers sell car buyers at time of purchase. These range from GAP waivers, vehicle service contracts, anti-theft devices, maintenance plans, tire-and-wheel coverage, and more.
Funding Team Challenge
Auto lenders must ensure that the aftermarket products they fund are compliant, properly cover the borrower and add value. For example, in 2018 one lender was ordered to pay ~$12m in borrower restitution and civil penalties for, among other things, funding 44k deals whose loan to value (LTV) ratio was above the GAP waiver cap of 125% as specified in the Terms and Conditions. As a result, these 44k borrowers did not receive “true full coverage.”
At time of funding, when dealers send required documents to lenders, 80% of aftermarket products are missing the terms and conditions pages containing information about cancellation fees and other information that prevents borrowers from being fully covered. Lenders get into trouble with their auditors who require dealers to send in the full contracts.
Solution
We’ve received millions of aftermarket product contracts over the years, allowing us to compile full contract examples of aftermarket products. Even if we only have the first page of an aftermarket product contract, which is what lenders receive 80% of the time, we can provide back any amount financed, LTV, and/or APR thresholds on the product in question, ensuring that the aftermarket product is fully compliant. In addition to the thresholds, we provide lenders with a copy of the full contract, including the Terms and Conditions (Ts&Cs) pages for audit purposes.
Servicing Team Challenge
Aftermarket product refunds have recently been at the forefront of regulatory scrutiny. In the CFPB’s 2022 Supervisory Highlights, leading indicators of enforcement actions, examiners identified instances where consumers paid off their loans early, but servicers failed to ensure consumers received refunds for unearned fees related to add-on products. In addition to early payment, other refund triggering events are refinance, default, or product cancellation. The current regulatory environment puts responsibility on lenders to initiate the refund process on behalf of the borrower and ensure the borrower receives a proper refund.
To make matters worse, lenders are required to refund the borrower often before hearing back from insurance administrators as to what the refund amount will be. Oftentimes lenders refund the borrower using the pro-rata calculation method in order to avoid under-refunding the borrower. They may ignore the complex refund calculation logic specified in the Ts&Cs pages even if they have the full contract. This results in lenders over-refunding borrowers on average ~$30/refund.
Solution
We provide instant/accurate refund quotes for our lenders such that they can comfortably refund the borrower. Utilizing the full contracts that we have mastered, we combine form specific refund calculation logic specified in the Terms and Conditions along with up to date state regulations to provide accurate refund quotes to our lenders. We have mastered the form data around refund calculation methodology, the free look period, cancellation fee, and even the state and lender specific cancellation fees that are present on most aftermarket products.
For example, the form below is a screenshot from the Terms and Conditions pages of a gap waiver contract. I’ll spare you the eye strain and tell you what it specifies about the refund calculation. The base cancellation fee is $50, but $0 for any Ford Motor Credit deals. Also, the cancellation fee is $25 for any deals in Arkansas, but $0 for deals from Kansas, Montana, New Mexico, Vermont, and Wisconsin. Even if we are just sent the first page of the aftermarket product, our AI models know what the Terms and Conditions specify, allowing us to calculate accurate refund quotes instantly.
