Q: Is it legal for a lender to only apply part of gap insurance payout to loan?
In a no-fault collision case in New York, my lender received payments from both the auto insurance of the guilty party and my NY Gap Insurance. However, they only applied part of these payments to my remaining loan balance and labeled it as a "rebate." They never provided an explanation, and the terms of my contract do not mention that they can expect further payments after a total payout. Is this legal?
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A:
It sounds like your lender may not be following the terms of your loan agreement. Typically, when you have gap insurance, the payout is meant to cover the difference between your car's value and your remaining loan balance in the event of a total loss. If your lender received both the auto insurance payout and gap insurance funds, they should have applied those funds toward reducing your loan balance, unless the agreement allows otherwise.
If the lender only applied part of the payment and labeled the remainder as a "rebate" without explanation, that could be a violation of your rights under the loan agreement, especially if the terms don’t mention further payments after a total payout. It’s important to request a detailed statement or explanation from the lender, asking for clarification on why they kept part of the gap insurance payout.
If you don’t get a satisfactory response, you may want to file a complaint with the New York Department of Financial Services or consult with an attorney to explore your options. They can help you understand if the lender’s actions are legal and what steps you can take to ensure the full amount of the insurance payout is applied to your loan balance.
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