Credit unions to pay $4 million in GAP fee refunds
On January 4, the Colorado attorney general announced settlements with two credit unions that will pay a combined $4 million in refunds to borrowers in the state who were entitled to “guaranteed automobile protection” (GAP) fee refunds. An investigation conducted by the Consumer Protection Section of the Colorado Department of Law found that the credit unions historically failed to refund unearned GAP fees owed to consumers. According to the state, the credit unions act as creditors by purchasing retail installment sales contracts from auto dealers that include GAP purchased by Colorado consumers. The state explained in its announcement that borrowers pay the full GAP fee when they purchase a car (the fee is typically only earned gradually over the loan’s lifetime). However, should a borrower prepay the loan prior to maturity or the car is repossessed and sold at auction before the loan is paid off, Colorado law requires lenders to refund the unearned portion of the GAP fee to the borrower, the state said.
The assurances of discontinuance (see here and here) apply to all consumer credit transactions entered into with consumers in the state related to any alleged unfair conduct committed by the credit unions related to GAP fee refund practices. In additional to paying consumer remediation and $100,000 each to the state, the credit unions also agreed to alter their business practices to ensure that applicable refunds will be provided to consumers going forward.