Evolving state legislation, regulatory trends impact credit union leasing programs  

In today’s high interest rate environment, consumers are increasingly turning to leasing as a better, more cost-effective option. This trend has significant implications for credit unions, providing a chance to diversify portfolios, boost membership and expand market share and leasing options.

Leasing appeals to many due to its shorter-term commitment and lower monthly payments compared with traditional financing, particularly amid market instability. This shift presents a strategic opportunity for credit unions to empower members while driving portfolio diversity and growth.

As credit unions venture into new markets like leasing, understanding the implications of evolving legislation and regulatory scrutiny is crucial. Recent developments in California, notably Assembly Bill 2311 and Senate Bill 1311, underscore this need, focusing on enhancing disclosures, cancellation policies and refund procedures related to GAP waivers.

These bills aim to ensure consumer protection by mandating detailed disclosures, specific cancellation policies and clear refund procedures regarding GAP waivers, which could significantly impact credit union operations. Failure to comply could lead to legal and financial consequences, highlighting the importance of proactive compliance efforts.

Additionally, the Federal Trade Commission‘s proposed rule targeting “junk fees” in the auto finance industry emphasizes the need for compliance and transparency, extending scrutiny to lenders beyond dealerships. This underscores the importance of robust processes for evaluating and financing F&I products, along with implementing technology-driven solutions to streamline operations and ensure regulatory compliance.

As credit unions increase market share with F&I products, they should watch for: 

Enhanced disclosures 

• Credit unions and leasing companies will be required to provide detailed and transparent disclosures to consumers regarding the terms and conditions of GAP waivers. 
• This includes clear explanations of coverage limits, exclusions, cancellation rights, and any associated fees or charges. 
• Failure to provide adequate disclosures could result in legal liability and regulatory penalties. 

Cancellation policies 

• California’s AB 2311 and SB 1311 may mandate specific cancellation policies for GAP waivers, allowing consumers to terminate coverage under certain circumstances. 
• Credit unions and leasing companies need standardized procedures for handling cancellation requests and issuing refunds to affected consumers. 
• These requirements aim to empower consumers with greater flexibility and control over their GAP waiver coverage, aligning with the principles of consumer protection and fairness. 

Refund procedures 

• Credit unions must establish clear guidelines and timelines for processing refund requests related to GAP waivers. 
• Credit unions must ensure that their refund processes comply with statutory requirements and are executed promptly and efficiently. 
• Failure to adhere to prescribed refund procedures could expose companies to legal liability and damage their reputation among consumers. 

Successfully navigating these challenges requires prioritizing compliance, transparency and consumer protection. Lenders must adopt comprehensive due diligence and proactive monitoring of legislative changes to mitigate risks effectively. 

The shift toward more leasing in the auto finance industry presents both opportunities and challenges for credit unions. By understanding and adapting to evolving legislative and regulatory landscapes, credit unions can position themselves for long-term success while meeting the needs of their members. 

Jessica Gonzalez is the director of lending strategies at Informed.IQ and has more than 15 years’ experience in the financial services industry, including tenures at Santander Consumer USA and Visa.  

Content sponsored by Informed.IQ.