Understanding Compliance Issues and Solutions with Back End Products

Transcription

1 Understanding Compliance Issues and Solutions with Back End Products Presented by Chip Zyvoloski, Senior Attorney Wolters Kluwer Financial Services 2014 Wolters Kluwer Financial Services

2 Scope of Presentation and Materials The following materials are intended to provide current and accurate information about the subject matter covered and are designed to help provide readers with summary information and a starting point for individual research and analysis. These materials and accompanying oral presentation are provided with the understanding that they are not intended as legal, accounting, or other professional advice and should not be relied upon as such. Any statement, philosophy or opinion expressed is that of the individual speaker and not of Wolters Kluwer Financial Services.

3 Proliferation of Back End Products What do we mean by Back-End or Add- On products? Traditional Examples: Credit Life and Disability Insurance Extended Warranty More Recent Examples: Credit Unemployment Insurance Gap Insurance Gap Waiver/Debt Cancellation/Debt Suspension Roadside Hazard and Towing Windshield/Glass Protection and Tire Protection

4 OVERVIEW 1. Product Review 2. Advertising and Promotional Materials 3. Sales Process for Products 4. Disclosures and Documentation 5. Servicing Post Sale Activity 6. Analyzing Potential Issues Under UDAP

5 Product Review Analysis of Product Analysis of Need Analysis of Vendor Analysis of Quality (coverage) Vendor vs. Dealer fulfillment Analysis of Price (risk and value) Overlap with Other Coverages Cumulative Impact

6 Product Review (cont.) Analysis of Dealer Costs and Payment Separate license needed to sell? Special expertise to sell? Cost to advertise Cost to support/fulfill/administer Other dealer costs Commission/Fees to dealer

7 Advertising and Promotional Materials Review Product descriptions Benefits claimed Pricing statements (accuracy, conditions) Special promotions (accuracy, conditions)

8 Advertising and Promotional Materials (cont.) MILES Program for Service members Consent order with a bank and financial services partner for unfair, deceptive or abusive acts and practices for their: Marketing the prices of an add-on vehicle service contract and an add-on GAP insurance product; and Marketing of the scope of coverage of a vehicle service contract Redress of $3.2 million from bank and $3.3 million from partner, plus cease-and-desist order

9 Advertising and Promotional Materials (cont.) FTC s Operation Steer Clear (January 2014) Nine auto dealers agreed to settle deceptive advertising charges, and FTC taking action against a 10 th dealer Involves claims of misrepresentations in print, Internet, and video advertisements

10 Advertising and Promotional Materials (cont.) Operation Steer Clear involved: advertising that consumers could purchase vehicles at specific low prices when, in fact, the price was $5,000 higher advertising that consumers could pay $0 up-front to lease a vehicle when, in fact, the advertised amounts excluded substantial fees and other amounts sending mailers that deceptively claimed consumers had won a sweepstakes prize, when, in fact, they hadn t

11 Advertising and Promotional Materials (cont.) Operation Steer Clear other claims: advertising that consumers could purchase a vehicle for specific low monthly payments when, in fact, consumers would owe a final balloon payment of over $10,000 advertising that consumers could drive home a vehicle for specific low up-front amounts and low monthly payments when, in fact, the deal was a lease and they would owe substantially more upfront

12 Sales Process for Products When does consumer first become aware of additional products? Product summaries/descriptions Menu selling with F&I Negotiable Pricing Purchase after closing Cancel after closing

13 Disclosures and Documentation Required state or federal product disclosures. Examples: Freedom to buy from someone else Right to cancel w/i certain time Dealer will retain a portion of the charge

14 Disclosures and Documentation (cont.) Insurance and Debt Cancellation TILA Regulation Z (Section (n) and (d)): In order to exclude charges from the finance charge and Annual Percentage Rate disclose: Coverage is not required Premium for initial term, term of insurance Separate buyer signature or initials Other disclosures vary by product

15 Disclosures and Documentation (cont.) Buyer signs agreement if needed Provide buyer a copy of the product agreement Explain and document what buyer needs to do to file a claim or if he/she has questions

16 Servicing Post Sale Activity Promptly file purchase information with vendor Helping buyer connect with vendor Ongoing vendor and product due diligence (repeat Product Review steps)

17 Analyzing Potential Issues Under UDAP Unfair & Deceptive Acts and Practices

18 UDAP v. Regulation Regulations can be painful, but they provide bright lines Disclosure specifics Guidance UDAP is less specific What is Unfair? What is Deceptive?

19 UDAP Concerns Loan Packing Payment Packing Insurance Packing Add-On Product Packing High Price Low Value Products

20 Role of Complaints in UDAP Consumer complaints play a key role in the detection of unfair, deceptive, or abusive practices. Those complaints can indicate weaknesses the dealer s compliance management system, such as Training Internal controls Monitoring or Product selection, features, pricing

21 Role of Complaints in UDAP (cont.) While the absence of complaints does not ensure that unfair, deceptive, or abusive practices are not occurring, complaints may be one indication of UDAPs. For example, the presence of complaints alleging that consumers did not understand the terms of a product or service may be a red flag indicating that a detailed review might be justified

22 Role of Complaints in UDAP (cont.) Complaints that may indicate possible UDAPs include: Misleading or false statements Missing disclosures or information Undue or excessive fees Inability to reach customer service Previously undisclosed or unauthorized charges

23 Questions? 2014 Wolters Kluwer Financial Services

24 Contact Me: Thank You