Mind the gap: Understanding UDAAP guidelines (Part 2)

by Peter Krall, NAFCU Services Blog

In part one of this blog series, we discuss how auto loans are increasingly being paid off early and how this is impacting GAP (Guaranteed Asset Protection) waivers.

Increasing voluntary protection product regulation places the responsibility on creditors to refund borrowers on unused portions of ancillary products. The CFPB’s spring 2022 issue of Supervisory Highlights, indicates an increased burden on creditors to comply with UDAAP (unfair, deceptive, or abusive acts and practices).  Supervisory Highlights notes how auditors are faulting lenders for “failing to request refunds from the third-party administrators for ‘unearned’ fees related to GAP products.” This is considered a UDAAP violation because “the product no longer offered any possible benefit to consumers.” 

This amplified regulatory pressure is causing some specific pitfalls for credit unions.

Product Refund Pitfalls

  • UDAAP concerns: UDAAP was designed to provide financial institutions with best practices to protect consumers against unfair, deceptive, or abusive acts and practices related to financial products and services. Previously a more generalized concept, UDAAP now resembles a laundry list of rules for financial institutions. Creditors need to ensure compliant policies and processes to mitigate UDAAP violations for ancillary product refunds.

 

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