Product refunds and CU exposure risks: 4 takeaways

The regulatory landscape surrounding cancelled ancillary products is changing. The risk of class-action lawsuits is starting to raise the stakes for credit unions, especially those active in indirect auto lending.

The root of the problem is how refunds are provided when policies are cancelled or a loan is paid off. While the regulatory and legal landscapes are shifting quickly on the issue, your member experience is equally at risk.

Here are four questions and answers related to product refunds:

  1. What products are considered refundable?

Most member-elected ancillary-type products have a refundable component if they’re bought at vehicle purchase or loan origination. These products (also known as add-on products, aftermarket products, or voluntary protection products) have premiums that are added to the borrower’s final loan amount. A refund may be owed if a trigger event (e.g., early loan payoff, repossession, total loss, or member request) that prevents the loan from reaching its maturity date occurs. The refund amount will depend on several factors, including the product’s policy language, state regulatory requirements, the type of triggering event, and how much time was left on the loan.


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