Managing risk in an increasingly regulated environment creates new challenges for financial institutions, particularly in the regulatory landscape surrounding cancelled ancillary products. Financial institutions are navigating legal challenges and enhanced regulatory oversight. It’s important lenders understand and pay attention to changing rules for direct and indirect loan channels as lawsuits raise the stakes and federal oversight increases.
A Complex Compliance Landscape
State and federal regulations are put in place to safeguard consumers against unfair, deceptive, and abusive acts and practices (UDAAPs) and comply with Consumer Financial Protection Bureau (CFPB) guidance. It is a best practice to adhere to their standards.
One emerging concern involves taking a closer look at how ancillary product refunds are provided when auto policies are cancelled, or a loan is paid off. The process includes multiple stakeholders, which results in increased complexity. In short, there’s an assumption consumers are not receiving refunds they are owed and, historically, it’s been unclear where responsibility for that ultimately falls. Another vague area is how much responsibility each party holds throughout the process to enforce adherence to regulations or provide guidance for changing compliance standards. A handful of states put this responsibility on the lending institution.
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