The Auto Lending Ecosystem Streamlines Refunds and Cancellations With Automated Compliance

In all industries, what happens after the sale can be as critical as the initial transactions themselves.

That includes the automotive industry, where cancellations and refunds of finance and insurance (F&I) products are part of the course of the normal lifecycle of interactions between consumers and companies.

The processes are made complex — not just in the workflows tied to processing those returns and cancellations, but due to the fact, too, that auto finance companies are heavily regulated.

F&I Sentinel CEO Stephen McDaniel told PYMNTS that several macro factors are affecting the auto-financing ecosystem, and “the challenge lies in the patchwork of disparate and ever-evolving compliance rules” that are different in all 50 states.

In the meantime, auto finance companies and vehicle protection products are also regulated by federal regulators such as the Consumer Finance Protection Bureau (CFPB) and the Federal Trade Commission (FTC).

There might be several scenarios that spur a consumer to cancel a F&I product. They might simply change their mind about the product itself or may opt to pay off their finance agreements early. The consumer is entitled to an accurate refund — though the mandated timeframes can vary from state to state.

McDaniel explained to PYMNTS that legally, the auto finance company that funds the consumer’s auto loan along with the F&I product(s) purchased by the consumer bears the compliance risk for the F&I product(s).

That’s the case, he said, “even though the auto finance company had no part in creating the terms and conditions of the F&I product or how it was sold.”

The impact of running afoul of the regulators can be significant, as McDaniel said, offering up the instance where last year, a major auto finance company was ordered to pay $60 million in penalties.

Against that backdrop, he said of his firm’s platform driven digital marketplace, “our mission is to protect consumers, by creating a compliant, transparent and efficient F&I product marketplace for auto finance companies, dealers and product companies.”

Significant Challenges

The challenges are significant in ensuring that the refunds are indeed timely and correct. McDaniel noted that lenders often lack the data needed to make the correct calculations — as they do not receive the entire F&I product contract from dealers when the loans are originated. Instead, they rely on the product company to provide the refund amount information — and in McDaniel’s words, “this could take weeks and inevitably this could put the lender outside of the acceptable refund timing.”

The calculations may be off by $5 to $10 per refund request, which seems like a small amount but in aggregate over thousands of requests, opens the lender to a class action suit, the CEO explained. Consumers, in the meantime, have a less than optimal experience when refunds are inaccurate or delayed.

On Wednesday (Feb. 7), F&I completed its previously announced acquisition of Express Recoveries from Cox Automative, a move that McDaniel said expands his firm’s existing managed compliance solutions to support the full range of F&I products, and expands its refund-centered offerings.

Express Recoveries connects lenders with providers and dealers to process product cancellation refunds, minimizing compliance risk, F&I said Wednesday, all the while strengthening consumer and dealer relationships. The combined efforts will streamline the flows inherent in initiating cancellations, determining refunds, obtaining recoveries on behalf of consumers and lenders, all in a compliant manner.

At a high level, he told PYMNTS, when consumes choose to cancel their F&I product purchase, “they can expect their refund to be accurately calculated and disbursed in a timely manner.”