On January 4, Colorado Attorney General Phil Weiser announced that his office had reached settlements with Bellco and Canvas credit unions which will provide $4 million in refunds of unearned guaranteed automobile protection (GAP) premiums to consumers that the credit unions failed to provide previously. In June 2022, we posted here about the five prior settlements reached by the state AG over GAP refunds. Based on the AG’s comments in the press release, we expect continued scrutiny in this area. “When hardworking Coloradans pay for GAP coverage, they deserve to receive what they are owed … My office will continue to hold accountable companies that violate the law and leave Coloradans without the money they were due.”
As background, GAP is a debt cancellation product frequently sold by auto dealers to customers who finance their automobile purchases through the dealer, a type of financing arrangement known as indirect auto lending. In the event a car is totaled in an accident, the car buyer’s primary automobile insurance typically pays only fair market value, which may be less than the amount owed on the loan due to a vehicle’s depreciation. GAP is designed to cover a portion of this remaining balance or “gap” owed to the lender on the finance agreement. Because GAP is tied to the term of the customer’s finance agreement, the purchaser is often entitled to a refund of the “unused” portion of GAP if the finance agreement ends early, for example, if the buyer pays off the car loan early or if the car is repossessed. The indirect auto lender’s refund obligations vary based upon the state in which the transaction originated. A minority of states, including Colorado, place certain obligations on indirect auto lenders to ensure that a customer receives a refund of a portion of the GAP cost when his or her loan ends early, whether or not the customer affirmatively requests the refund.
Both credit unions agreed to provide pro rata refunds which totaled $4 million. If these refunds are unable to be refunded to consumers within 150 days, then the remaining unclaimed amounts revert as a payment to the state.
Both credit unions also agreed to pay $100,000, in lieu of reimbursing Colorado’s cost in investigating the matters, and agreed to permit the state to inspect the companies’ books and records related to GAP refunds for a period of one year.
As part of the Assurances of Discontinuance for Bellco and Canvas, the credit unions stipulated that going forward GAP refunds will be made on all consumer loans prepaid prior to maturity (both credit unions were already providing refunds on loans where the vehicles had been repossessed). They both also stipulated to having conducted an audit identifying those consumers potentially owed refunds during the applicable period, which they will provide to Colorado’s UCCC administrator.
Additional state attorneys general, including Massachusetts and Vermont, have scrutinized the refunding of unearned GAP premiums.
We will continue to watch the state attorneys general activity with regard to refunds of unearned GAP premiums and will post updates here as they occur.
Troutman Pepper Consumer Financial Services Team
|Jeremy Rosenblum |
Jeremy focuses his practice on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products designed to serve the needs of unbanked and under-banked consumers), bank overdraft practices and disclosures, geographic expansion initiatives, and compliance with federal and state consumer protection laws, including statutes prohibiting unfair, deceptive and abusive acts and practices (UDAAP); usury laws; the Truth in Lending Act (TILA); the Electronic Funds Transfer Act; E-SIGN; the Equal Credit Opportunity Act; and the Fair Credit Reporting Act (FCRA).
|Mark Furletti |
Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial services across numerous industries.
|Caleb Rosenberg |
Caleb is an associate in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small businesses in the credit and alternative finance products industry.
|Chris Capurso |
Chris focuses his practice on consumer financial services compliance, guiding clients through the many federal and state laws and regulations that impact consumer credit programs.
Troutman Pepper State Attorneys General Team
|Ashley Taylor – Co-leader and Firm Vice Chair |
Ashley is a partner in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and co-leader of the State Attorneys General practice. He focuses primarily on federal and state government regulatory and enforcement matters involving state attorneys general, the Consumer Financial Protection Bureau (CFPB), and the Federal Trade Commission (FTC). Drawing upon his experience as a deputy attorney general, Ashley has developed an extensive consumer practice with regard to the consumer financial services industry.
|Clay Friedman – Co-leader |
Clay is a partner in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and co-leader of the State Attorneys General practice. Informed by nearly a decade in a state attorneys general office, and more than 25 years in private practice, Clay spends much of his time representing clients in singular or multistate regulatory actions. Clay has repeatedly led teams before all 50 state attorneys general and also handles matters with the Federal Trade Commission, the Consumer Financial Protection Bureau, and other local, state and federal agencies.
|Stephen Piepgrass |
Stephen represents clients interacting with, and being investigated by, state attorneys general and other enforcement bodies, including the CFPB and FTC, as well as clients involved with litigation, particularly in heavily regulated industries.
|Avi Schick |
A former deputy attorney general of New York, Avi applies his experience in bet-the-company matters, representing clients in criminal and civil investigations and enforcement actions before state and federal regulators, prosecutors and enforcement agencies.
|Michael Yaghi |
Michael handles high-profile state attorneys general, FTC, and CFPB investigations by advising clients through these complex government inquiries. He assists clients through the entire life cycle of investigations, from regulatory enforcement through formal litigation.
|Ketan Bhirud |
As a former government official at the state and federal level, Ketan leverages extensive experience in the public and private sectors to skillfully represent client interests.
|Tim Bado |
Tim is an attorney in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, with a primary focus on financial services litigation.
|Chris Carlson |
Chris represents clients in regulatory, civil and criminal investigations and litigation. In his practice, Chris regularly employs his prior regulatory experience to benefit clients who are interacting with and being investigated by state attorneys general.
|Natalia Jacobo |
Natalia is an associate in the firm’s business litigation practice. She recently received her J.D from the University of California, Davis School of Law.
|Namrata Kang |
Namrata is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, based in the Washington, D.C. office. Her work includes advising clients in regulatory investigations and compliance matters, in addition to representing clients in civil litigation matters.
|Whitney Shephard |
Whitney is an attorney in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. She represents clients facing state and federal regulatory investigations and enforcement actions, as well as related civil litigation.
|Stephanie Kozol |
Stephanie is Troutman Pepper’s senior government relations manager in the state attorneys general department.