FNI Inc. president David Bafumo spent part of his Thanksgiving holiday dissecting the potential pitfalls that resulted in Santander Consumer USA reaching a settlement with the Consumer Financial Protection Bureau over a GAP product.

Two days before the country carved turkeys and passed around pie, the CFPB described a consent order detailing how the bureau found Santander violated the Consumer Financial Protection Act of 2010 by not properly describing the benefits and limitations of its S-GUARD GAP product, which the finance company offered as an add-on to its auto finance products.

The regulator also stated SCUSA failed to disclose the impact properly on consumers of obtaining a contract extension, including by not clearly and prominently disclosing that the additional interest accrued during the extension period would be paid before any payments to principal when the consumer resumed making payments.

Under the terms of the consent order, the CFPB said Santander must, among other provisions, provide approximately $9.29 million in restitution to certain consumers who purchased the add-on product, clearly and prominently disclose the terms of its contract extensions and the add-on product, and pay a $2.5 million civil money penalty.

Meanwhile, Bafumo did not doze into a turkey-induced nap this past week. Instead, he examined the consent order that’s available here and offered his analysis in an attempt to help dealerships and finance companies not have to fork over millions to their customers and the bureau.

“The bureau hangs their enforcement hat on just one element of the S-Guard GAP program, basing the entire ‘unfair and deceptive’ finding on a 125 percent loan-to-value benefit limitation found in the S-Guard consumer contract,” Bafumo wrote in his latest Take Action newsletter that he shared with SubPrime Auto Finance News.

“The cap means that no GAP benefit coverage is provided for the amounts financed over 125 percent — potentially leaving those customers partially unprotected,” he continued in the newsletter available here.

“In the bureau’s opinion, the limitation makes the S-Guard GAP marketing materials deceptive, as they do not specify the limitation and instead, make multiple references to ‘true full coverage,’ implying that a customer’s complete deficiency balance would be covered by the GAP contract benefits," he went on to say.

Bafumo explained that the CFPB first delved into regulating GAP coverage in 2012 and 2013. As a result, he noted that many providers modified their marketing material. Providers often changed the wording from, “In the event of a total loss, GAP pays the difference in what you owe on your loan and what your insurance company settles for,” instead to “GAP helps pay the difference in what you owe…”

Bafumo emphasized that this modification recognized there are exclusions to coverage and to imply the possibility of a balance still due.

“Missing this well known, industry-wide adjustment in GAP marketing was a mistake by Santander’s due diligence team and by the S-Guard GAP administrator who provided both the product and the marketing materials,” he said.

Bafumo closed his latest update by stressing some of the points and strategy offered via his firm that’s online here. He included:

• Document your product vendor and marketing due diligence.
• Establish a standardized, compliant marketing process.
• Implement a product-specific consumer disclosure form.
• Require product vendor agreement terms that protect you.