On June 23, Colorado Attorney General Phil Weiser announced that his office had reached a settlement with Red Rocks Credit Union to refund Colorado consumers more than $300,000 after the credit union failed to refund unearned guaranteed automobile protection (GAP) premiums entitled to consumers under state law.

The settlement is the fifth such resolution with automobile lenders and GAP administrators by the Colorado attorney general in the past two years. Scrutiny will likely continue since the state attorney general’s office previously issued at least 10 investigative subpoenas related to GAP products, while also leading coordinated efforts with other state attorneys general.

GAP Overview

GAP is a debt cancellation product frequently sold by auto dealers to customers who finance their automobile purchases through the dealer, a type of financing arrangement known as indirect auto lending. The price of GAP is often paid in full at the time of purchase and financed along with the vehicle, and the GAP contract is assigned after origination by the dealer to an indirect auto lender that services the loan. Dealers, not indirect lenders, typically receive the amount paid for GAP. In the event a car is totaled in an accident, the car buyer’s primary automobile insurance typically pays only fair market value, which may be less than the amount owed on the loan due to a vehicle’s depreciation. GAP is designed to cover a portion of this remaining balance or “gap” owed to the lender on the finance agreement.

GAP Refund Obligations

Because GAP is tied to the term of the customer’s finance agreement, the purchaser is often entitled to a refund of the “unused” portion of GAP if the finance agreement ends early, for example, if the buyer pays off the car loan early or if the car is repossessed.

Regarding GAP refunds, the indirect auto lender’s obligations vary based upon the state in which the transaction originated. In most states, GAP refund obligations are governed by the terms of the GAP agreement executed between the customer and the dealer, which generally include the procedure for customers to request a refund from the dealer that processes the cancellation and issues a refund.

However, a minority of states, including Colorado, place certain obligations on indirect auto lenders to ensure that a customer receives a refund of a portion of the GAP cost when his or her loan ends early, whether or not the customer affirmatively requests the refund.

Colorado’s Resolution With Red Rocks Credit Union

In early 2022, Red Rocks Credit Union reached a settlement in a class-action lawsuit with consumers, seeking class relief for an alleged failure to issue GAP refunds. Red Rocks Credit Union knew of the Colorado attorney general’s ongoing GAP enforcement actions against other institutions. Therefore, as part of the class-action settlement, Red Rocks Credit Union proactively sought a release from the Colorado attorney general’s office to release the credit union from any legal action so long as Red Rocks paid full refunds plus interest to affected Colorado consumers. To date, Red Rocks Credit Union has paid out approximately $312,000 in refunds to over 1,300 consumers.

Under the settlement terms, Red Rocks Credit Union will ensure that GAP refunds are made to all consumers as provided under Colorado law. Red Rocks Credit Union will also verify refund totals and will permit an audit by Colorado’s UCCC administrator (a division of the Colorado attorney general’s office) any time over the next year to ensure compliance. The settlement does not include any additional monetary penalty.

Industrywide Probe

The is the fifth resolution in the past two years where the Colorado attorney general has required refunds of GAP fees, including several settlements with national banks. For example, in May 2021, Colorado GAP administrator American Assurance Corporation (AAC) entered into an assurance of voluntary compliance with Colorado’s UCCC administrator, with AAC agreeing to fully refund GAP fees improperly withheld (a GAP administrator acts as an intermediary between lenders, dealers, and customers). As with Red Rocks Credit Union, no monetary penalties were assessed in addition to the GAP refunds because AAC proactively reached out to the Colorado attorney general’s office about its failure to make these refunds, “accepted responsibility,” and worked “in good faith and on a voluntary basis” to refund the 171 implicated customers in the amount of $121,983. In addition, in March, Colorado announced that it secured the return of unearned GAP premiums, totaling $9.5 million for over 50,000 Colorado consumers.

Attorney General Weiser’s press release made clear that Colorado’s scrutiny of lenders and GAP administrators is not over, stating: “This settlement reflects our office’s efforts to ensure hardworking consumers are not cheated out of money … denying a consumer GAP refunds to which they are entitled is unfair and illegal.”


With five resolutions resulting in over $10 million in GAP refunds in the past two years, we would expect the Colorado attorney general to continue to scrutinize whether lenders and GAP administrators are complying with state laws regarding the return of GAP fees.