USAlliance Federal Credit Union faces a proposed class action over its alleged failure to refund all unearned fees for guaranteed asset protection (GAP) waiver addendums in the event a consumer pays off a car finance agreement early.
The 17-page breach-of-contract suit contends that the failure of USAlliance, doing business as USAlliance Financial, to refund consumers’ GAP waiver addendums—which essentially provide a debt cancellation in the event a consumer’s vehicle is declared a total loss after an accident or stolen before they can pay the rest of their loan—has netted the company millions per year in unearned fees from car buyers.
“USAlliance’s policy and practice of retaining these unearned fees related to GAP Waiver Addendums when the underlying automobile loan is paid off early constitutes a breach of contract, unjust enrichment, and a deceptive business practice in violation of the Pennsylvania’s [sic] Unfair Trade Practices & Consumer Protection Law and New York’s General Business Law,” the complaint, filed on September 10 in New York’s Southern District Court, alleges.
If a consumer gets into an accident and their car is deemed a “total loss,” or if the vehicle is stolen, the amount the individual owes on their car loan might be more than the amount their insurance company is willing to pay for the loss of the car, the lawsuit begins. The difference between what an insurer is willing to pay and what the consumer still owes on an auto loan is known as the “gap,” the suit says, noting GAP products allow a consumer to cover this difference between what they owe to a creditor and the proceeds from the insurance company.
Whereas GAP insurance is a contract between an insurance company and a consumer, a GAP waiver is effectively a debt cancellation agreement, whereby the creditor agrees to write off the “gap” in the event a consumer’s vehicle is a total loss or if it was stolen, the case relays.
To obtain a GAP waiver, a consumer and a vehicle seller execute a contract on a take-it-or-leave-it basis, according to the suit. Per the lawsuit, a GAP waiver form generally stipulates that the creditor on the car financing agreement agrees to waive the difference between what an insurer has paid and what’s remaining on a consumer’s auto loan should the vehicle be totaled or stolen so long as the consumer pays a monthly fee over the life of the loan, with interest.
Importantly, the case says, the payoff amount throughout the life of the loan includes the remaining cost of the GAP waiver addendum. Thus, the suit relays, every USAlliance GAP waiver addendum provides that if a consumer’s car financing agreement is paid off prior to the end of the full loan term, the GAP waiver addendum will terminate and the individual is entitled to a refund of the unused portion of the GAP fees that were included in the payoff amount.
“Such a provision makes sense: consumers should not have to pay for a service they no longer need and derive no benefit from,” the complaint reads.
The lawsuit alleges USAlliance knows consumers are entitled to a refund of unearned GAP fees when they pay off their finance agreement early yet collects the fees anyway.
The case looks to represent all persons who, during the applicable statute of limitations period, entered into finance agreements with GAP waiver addendums that were assigned to USAlliance and who paid off their finance agreements before the end of the loan term but did not receive a refund of unearned GAP fees.
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