When Refund Checks Become a Compliance Headache

When Refund Checks Become a Compliance Headache

Auto lenders have digitized the borrower journey from end to end—yet one of the most routine and high-risk payment moments still runs on paper checks. And those checks? They create a larger compliance risk than you might realize.

Think about loan overpayments, lease deposit returns and GAP refunds, the kinds of high-volume payments that happen every day across your portfolio. For most lenders, these refunds still rely on manual workflows, not designed with today's regulatory scrutiny in mind.

The Hidden Cost of "How We've Always Done It"

Let's walk through what happens when you issue a check-based refund.

One person calculates the amount. Another approves it. A third generates the check. Then comes tracking, reconciliation, followed by exception handling when checks don't clear, stop payments, reissues when borrowers say they never received them. With each step touching multiple systems and teams, there’s significant room for errors in this tedious and manual process.

Next, consider the costs associated with issuing a paper refund. A single check can range from $7 and $15 once labor, materials, and overhead are factored in. And that's before managing unclaimed property when checks go uncashed.

The complex workflow and financial impact are only part of the story. The real risk appears when an examiner asks to see your refund documentation.

What Keeps Compliance Teams Up at Night

If you work in compliance, finance, or operations, you already know where this gets complicated.

Refunds touch some of the most sensitive areas of regulatory oversight. You’re holding funds that belong to borrowers, and regulator stake a close look at how—and how quickly—you return them. Unclaimed property rulesvary by state. Consumer protection standards demand timely, accurate payments. And when something goes wrong, borrowers notice, and so do regulators.

Manual, check-based processes can cause the same headaches for your team again and again:

·  Exception queues that never shrink. When a borrower asks about a missing refund, the search begins. Now, your team must review spreadsheets, emails, and multiple systems to try to piece together what happened.

·  Limited visibility into the process. If simple questions such as “Where is this refund?” or “Are we meeting our timelines?” arise, it can be challenging to answer.

· Audit prep becomes a scramble. When exams or internal audits arrive, teams pull data from different systems, trying to reconstruct a clear, compliant timeline.

As regulators continue to flag delayed refunds, weak audit trails, and inconsistent unclaimed property practices, if you can't demonstrate correct management of refunds, you've got a problem.

Making the Shift

If you’re still issuing refund checks in 2026, you aren’t alone. But the case for switching from legacy payout strategies is clear. The question isn't whether to modernize, it’s how to do it without adding additional work or risk

Here's what changes when refunds are modernized with digitalsolutions:

· Clear visibility. Real-time tracking shows exactly where each refund stands—eliminating mystery payments and time-consuming research.

· Built-in audit trails. Every action is logged automatically, making audit preparation far less disruptive while allowing for immediate access to documentation.

· A better borrower experience. Recipients can choose how they are paid instead of waiting for a check, and have clear visibility into where their refund is

At Onbe, we’ve been managing payouts for businesses in 60+ industries for over 25 years. Since 2012, we’ve delivered more than 22 million refunds to hundreds of millions of consumers. Our platform integrates with your existing systems, from loan management platforms to borrower portals. There’s no rip-and-replace. Instead, you add a dedicated payout provider that handles the complexity and risk, while aligning your refunds with the digital experience borrowers expect.

Want to see how this could work for your organization? Request a demo to explore how digital refunds can help you scale—without the compliance headaches.