Skip to main content
Menu Icon Menu Icon

InfoBytes Blog

Financial Services Law Insights and Observations


Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Colorado reaches agreements with credit unions over unused GAP fees violations

    State Issues

    Recently, the Colorado attorney general announced three separate settlements (see here, here, and here) with three credit unions resolving allegations that they neglected to refund unearned Guaranteed Automobile Protection (GAP) fees to Colorado consumers. The administrator of the Uniform Consumer Credit Code (UCCC), who is part of the Consumer Protection Division of the Department of Law and who led this investigation, concluded that the credit unions engaged in unfair and deceptive trade practices under the Colorado Consumer Protection Act by failing to provide GAP refunds automatically without waiting for a request from the consumer. Under the terms of the assurances of discontinuance, the credit unions have agreed to comply with all legal obligations and issue refunds to affected borrowers, and: (i) must comply with the UCCC rule’s GAP refund requirements; (ii) are subjected to an audit to verify the accuracy of their self-audits; and (iii) must send a confirmation letter pre-approved by the administrator to each consumer to whom a GAP refund was paid because of the self-audits. The AG noted that the “settlements are part of our office’s efforts to ensure lending institutions follow Colorado law and do not cheat hardworking consumers out of money they are entitled to under their lending and coverage agreements.”

    State Issues Colorado GAP Fees State Attorney General Enforcement Settlement Credit Union Consumer Finance

    Share page with AddThis
  • Agencies file amicus brief on “hybrid” loan MLA protections


    On January 6, the CFPB, DOJ, and DOD filed an amicus brief on behalf of the United States in support of a consumer servicemember plaintiff’s appeal in Jerry Davidson v. United Auto Credit Corp, arguing that the hybrid loan at issue in the case, which was used for both an MLA-exempt and non-exempt purpose, must comply with the MLA. The loan included an amount used to purchase Guaranteed Auto Protection (GAP) insurance coverage, and the plaintiff alleged that, among other things, the auto lender (defendant) violated the MLA by forcing the plaintiff to waive important legal rights as a condition of accepting the loan and by requiring him to agree to mandatory arbitration should any dispute arise related to the loan. The plaintiff also alleged that the defendant failed to accurately communicate his repayment obligations by failing to disclose the correct annual percentage rate. The case is before the U.S. Court of Appeals for the Fourth Circuit after a district court held that the plaintiff’s GAP insurance fell within the car-loan exception to the MLA as “inextricably tied to” and “directly related” to the vehicle purchase.

    Arguing that GAP coverage “is not needed to buy a car and does not advance the purchase or use of the car,” the agencies’ brief noted that GAP coverage is identified as “debt-related product that addresses a financial contingency arising from a total loss of the car” and that the coverage can be purchased as a standalone product. According to the brief, the plaintiff’s loan is a “hybrid loan—that is, a loan that finances a product bundle including both an exempt product (such as a car) and a distinct non-exempt product (such as optional GAP coverage),” and the district court erred in failing to interpret the MLA consistent with guidance issued in 2016 and 2017 by the DOD suggesting that such “hybrid loans” are consumer credit subject to the protections in the MLA. The 2017 guidance explained that “a credit transaction that includes financing for Guaranteed Auto Protection insurance … would not qualify for the exception,” and the agencies argued that although the 2017 guidance was withdrawn in 2020, the “withdrawal did not offer a substantive interpretation of the statute that would alter the conclusion” that the plaintiff’s loan was not exempt from the MLA.

    Courts CFPB Department of Defense DOJ Amicus Brief Appellate Fourth Circuit Servicemembers Military Lending Act Military Lending GAP Fees

    Share page with AddThis
  • Colorado reaches agreement with financial institution to refund $1.68 million in unused GAP fees

    State Issues

    On September 27, the Colorado attorney general announced that a financial institution has agreed to refund approximately $1.68 million to Colorado borrowers after allegedly failing to return guaranteed automobile protection (GAP) fees that were improperly retained by the financial institution. Under Colorado law, lenders are required to automatically refund borrowers any unearned GAP payments if a borrower prepays a loan prior to maturity or a vehicle is repossessed before the loan is paid off. Under the terms of the assurance of discontinuance, the financial institution (without admitting or denying liability) has agreed to comply with all legal obligations and issue refunds to affected borrowers. The financial institution will also pay $75,000 to the AG as reimbursement for costs. The AG noted that the financial institution voluntarily provided information concerning GAP payments to Colorado borrowers, fully cooperated in good faith, and has “committed to a robust oversight system to ensure” future compliance. The AG also noted that a separate credit union is currently determining the amount of GAP refunds it owes to consumers.

    State Issues Auto Finance State Attorney General GAP Fees

    Share page with AddThis