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Financial Services Law Insights and Observations

Bank reaches auto loan settlement

Courts Class Action Settlement Auto Finance Guaranteed Asset Protection Fees Consumer Finance State Issues

Courts

On June 8, the U.S. District Court for the Central District of California preliminarily approved a class action settlement, resolving allegations that a national bank failed to properly refund payments made pursuant to guaranteed asset protection waiver (GAP Waiver) agreements entered into in connection with auto loans. As previously covered by InfoBytes, the plaintiffs claimed that the bank knowingly collected unearned fees for GAP Waivers and allegedly “concealed its obligation” to issue refunds on GAP Waiver fees for the portion of the GAP Waiver’s initial coverage that was cut short by early payoff. The bank sought dismissal of the suit, arguing, among other things, that—with the exception of one consumer’s claims—all of the plaintiffs’ contracts include “a condition precedent under which the [p]laintiffs must first submit a written refund request for unearned GAP fees before being entitled to a refund,” a condition, the bank argued, which was not fulfilled. The court dismissed breach of contract claims brought by the majority of the plaintiffs, noting that most of the plaintiffs were not excused from complying with the condition precedent in their contracts with the bank. The court did, however, allow claims filed by plaintiffs whose contracts did not contain condition precedent language to proceed.

Under the terms of the preliminary settlement reached between the parties, beginning in 2022 and continuing for four years, the bank is obligated to automatically refund unearned GAP fees to consumers who pay off their auto loans early, and will pay refunds along with compensation for the loss of the use of the funds to class members who have not yet received such payment. The bank will also add $45 million in a “supplemental” settlement fund to cover refunds, additional compensation payments, and other settlement-related costs and expenses. This amount is in addition to the more than $33 million in refunds the bank has already issued. The bank did not admit any wrongdoing and maintained that it did not breach the terms of any GAP agreements or otherwise fail to pay early payoff GAP refunds.

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