On July 18, 2023, the New York Department of Financial Services published an industry letter alerting the public that some auto lenders and auto loan servicers (“institutions”) have engaged in unfair and deceptive practices by improperly failing to credit consumers for refunds in connection with financed vehicles that were repossessed or declared a total loss.
The department said “[m]any institutions finance the costs to consumers of products that are purchased at the same time as the main vehicle such as extended warranties, vehicle service contracts, guaranteed asset protection insurance, and other ancillary products.” Under the terms of many of those products, the department added, consumers are “entitled to a rebate for the prorated, unused value of the product” in the event of a repossession or total loss. The department found during examinations that certain institutions failed to properly refund customers, with some failing to pursue refunds from issuers of the products and others failing to correctly calculate the refund amounts owed.
The letter states that the state agency expects all institutions to calculate, obtain, and credit to consumers any refund due from the cancellation of an ancillary product.
The department drew similarities between its findings and the CFPB’s Supervisory Highlights from Spring 2019, in which the CFPB noted that “one or more of its examinations identified auto loan servicers that engaged in deceptive practices when they sent deficiency notices to consumers that listed a deficiency balance that purported to include credits/rebates even though the servicer has not sought Rebates for the Ancillary Products;” and with the CFPB findings in its Winter 2019, Summer 2021, and Spring 2022 Supervisory Highlights that “collecting, or attempting to collect, miscalculated deficiency balances that failed to incorporate the pro-rata refund to which the lender was entitled, is unfair.”
The department said it considers:
- An institution’s failure to obtain and credit to consumers rebates from unexpired ancillary products to be unfair, because it causes or is likely to cause substantial injury to consumers who are made to pay or defend themselves against deficiency balances in excess of what the consumer legally owes; and
- An institution’s statements and claims of consumers’ deficiency balances that do not reflect all correctly calculated and applied rebates to be deceptive.
The department closed its letter by making it clear that the state agency expects an institution to “calculate, obtain, and credit to consumers, either by application to deficiency balance (if any) or by check (if there is no deficiency balance owed), rebates from the cancellation of Ancillary Products in every case in which they are owed.”
The Department’s letter to the industry can be found here.
