Colo. AG, DOJ regulatory actions reminder to watch F&I compliance

Three settlements between banks and regulators over the past several days serve as a reminder for F&I departments and auto lenders to pay close attention to state and federal rules.

On Sept. 27, Democratic Colorado Attorney General Phil Weiser announced that BBVA (which is in the process of being absorbed by PNC) and Air Academy Credit Union owe consumers at least $1.68 million in GAP fee refunds.

GAP covers the difference between the vehicle's actual cash value — the maximum an auto insurer would be obliged to pay — and the amount financed if the car or truck is totaled.

If the consumer pays off their loan early or their vehicle is repossessed, it's possible they've paid for GAP coverage that no longer protects anything. Under the state's consumer credit code, lenders must repay such "unearned GAP payments," according to Weiser's office.

According to the agreement signed by BBVA and the state, lenders must cut those refund checks "automatically, and without awaiting a request from a consumer."

The attorney general's office said it discovered Compass Bank, which BBVA acquired in 2007, and Air Academy had not been doing so.

"We are committed to protecting hard-working Coloradans, especially from unfair, deceptive, and illegal practices that cause them stress, hardship, and financial losses," Weiser said in a statement. "I am pleased that this money will be returned to Colorado residents and service members who paid for GAP when they purchased a vehicle. We will continue demanding compliance from lending institutions in Colorado to protect all consumers."

Both companies acknowledged the payment issue and agreed to refund GAP revenue to customers. Neither admitted any liability. BBVA caught the issue itself and had already changed its practices and worked to repay customers before Weiser's office came calling.

Air Academy did not respond to requests for comment.

"BBVA USA is pleased to have resolved the Guaranteed Automobile Protection (GAP) matter with the Attorney General's office," a BBVA spokesman said in a statement. "We look forward to continuing our efforts to serve Colorado residents with the full spectrum of their banking needs."

According to its agreement with the state, Air Academy has said the failure to pay refunds "resulted from auto dealers and GAP administrators retaining the GAP premiums." This could constitute a violation of the Colorado Consumer Protection Act by Air Academy "in conjunction with dealers and GAP administrators," the deal states.

BBVA said it would pay $1.68 million to 5,209 Coloradans over loans which had ended early between June 27, 2011, and Jan. 22, 2021. BBVA changed its practices to stay in compliance effective Jan. 22.

Air Academy is investigating how much it owes, according to Weiser's office. The credit union has found 7,875 loans involving an F&I product which had been paid off early between Jan. 1, 2014, and April 1, 2021. However, it's not sure how many of them included GAP. Air Academy said it changed its practices to ensure compliance effective April 1.

Shortly after the Colorado announcement, the Department of Justice settled with two captive companies over alleged lease-related violations of the Servicemembers Civil Relief Act.

American Honda Finance Corp on Sept. 29 committed to pay $1.65 million to settle allegations it failed to refund trade-in credit to service members as part of their rights to end leases early. Under the act, lessees can end their leases when they join the military or are ordered or deployed to another location. The DOJ alleged that Honda refunded upfront cash payments but failed to refund trade-in credits, calling this a violation of the law.

According to the settlement, Honda admitted no liability or wrongdoing and said it feels trade-in credits are "a payment in the form of a down payment, retained by the motor vehicle dealer and no part of which is paid to or received by (Honda Finance)." The government disagrees and calls it a violation of the act.

"This case illustrates the Justice Department's steadfast commitment to protecting the rights of servicemembers," DOJ Civil Rights Division Assistant Attorney General Kristen Clarke said in a statement. "We will continue to vigorously enforce federal law to ensure that no servicemember faces unlawful treatment by auto leasing companies or other entities."

Under the deal, Honda will earmark $1.59 million in refunds for 714 service members affected by Honda's practice between July 1, 2014, and today. Another $64,715 will be paid to the U.S. Treasury for Honda training, which will be reviewed by the federal government. The settlement requires Honda to train all relevant employees and repeat training annually.

Honda Finance said in a statement it had reached a settlement "regarding errors in the processing of vehicle loans to active duty military personnel under the Servicemembers Civil Relief Act."

"AHFC has reimbursed affected military customers and has revised its procedures," the statement said.

Here is Automotive News' coverage of the Honda Finance settlement.

The next day, Chrysler Capital agreed to pay $134,000 to settle allegations it refused to let 10 qualified service members out of their leases. This covered about $94,283 for the troops and a $40,000 penalty.

Chrysler Capital has agreed to conduct compliance training and repeat it annually.

"Given all our veterans put on the line when they deploy or change station, the last thing they should have to worry about is their car lease," said Northern District of Texas Acting U.S. Attorney Prerak Shah. "The Servicemembers Civil Relief Act is designed to ease the financial burdens associated with active duty military service. We are determined to uphold this important law."

Chrysler Capital administrator Santander Consumer USA admitted no liability or wrongdoing in the settlement.

"Santander Consumer is pleased to resolve this matter related to 10 customers and our compliance with the Servicemembers Civil Relief Act," Santander said in a statement. "Santander Consumer is a responsible lender operating in a highly regulated environment, and we have a robust program of benefits for SCRA-eligible customers that goes beyond the minimum requirements."

Both actions were part of the Department of Justice's Servicemembers and Veterans Initiative, a new permanent addition to the Civil Rights Division.