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Optional Products: Rules and Best Practices

State and federal agencies are strictly reviewing dealers' optional protection products. The CFPB has focused on servicers failing to request refunds from third-party administrators for “unearned” fees related to products and the amounts charged. As such, now is a good time to review your internal policies.

NADA has a voluntary protection products model policy that is available here. This model policy can help you create your own policy for voluntary protection products. TIADA recommends you review your charges made to customers to ensure they comply with the legal requirements. Here are a few examples discovered by other dealers either during internal audits or OCCC exams.

Debt Cancellation Agreements

  • Debt cancellation agreement for total loss or theft of an ordinary vehicle in which holder bears complete responsibility for canceling the debt after total loss or theft. The following figure contains a rate schedule of maximum fees that are deemed to be reasonable for debt cancellation agreements for total loss or theft of an ordinary vehicle.
https://texreg.sos.state.tx.us/fids/201103333-1.pdf
 
  • Debt cancellation agreement for total loss or theft of a used ordinary vehicle with a cash price of $15,000 or less in which the retail seller does not assign the retail installment sales contract to any party other than a related finance company as defined by Texas Tax Code, §152.0475(a), and in which the retail seller bears complete responsibility for canceling the debt after total loss or theft whether the retail buyer elects to obtain property insurance. The following figure contains a rate schedule of maximum fees that are deemed to be reasonable for debt cancellation agreements for total loss or theft of an ordinary vehicle.
https://texreg.sos.state.tx.us/fids/201103333-2.pdf

CPI Payments

A few dealers have run into issues during exams because they overcharged CPI premiums to customers making biweekly payments. In those instances, the dealer split the premium in half and charged the customer half the monthly amount of 26 payments annually instead of 24 times.

GAP Insurance

Premium or rate for gap waiver agreement. A licensee may charge a reasonable gap waiver agreement fee that does not exceed the rates contained in the following figure. The amount of the fee is based upon the amount financed. The fee for the gap waiver agreement can be adjusted to the nearest whole dollar. The fee may be included in the amount financed, and a finance charge may be charged on the fee.

https://texreg.sos.state.tx.us/fids/200605715-1.pd

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