Three States Pass GAP Laws
July 13, 2017
AUGUSTA, Maine — With Governor Paul LePage’s signing of S.P. 531 into law on June 12 — legislation that clarifies what GAP is and does, and defines how it is sold — the Guaranteed Asset Protection Alliance is now two states away from reaching its 2017 goal.
Set to take effect on Jan. 1, 2018, Maine’s new law mirrors the model act developed by the GAPA, an alliance of GAP providers, underwriters and finance sources that is managed by Tallahassee, Fla.-based law firm Meenan P.A. Aside from the consumer protections it puts in place and the tools its gives state regulators to discipline bad actors, Maine’s new law offers GAP providers protections as well.
“In some cases, GAP is regulated by just an opinion offered by the state’s department of insurance or the insurance commissioner, but it’s only good as long as that person is in office,” said Rob Berger, president of the GAPA and executive vice president and director of operations for F&I product provider Wise F&I. “But commissioners get voted out, and opinions change. That’s why GAPA goes into states that might already allow GAP from an opinion. Once GAP gets into the books, an insurance commissioner can’t say, ‘I don’t want it.’ So it protects the product.”
Maine was one of four states the GAPA targeted this year, Berger said. Alabama, another state targeted by the alliance, passed similar legislation that was signed into law by Governor Kay Ivey on May 26. Remaining is New Jersey and Wisconsin.
The Texas Legislature also passed a GAP bill in mid-May — legislation signed into law by Governor Greg Abbott on May 26. Berger said the bill, Senate Bill 1052, wasn’t initiated by the GAPA. Set to take effect Sept. 1, the legislation amends current state law governing the sales of debt-cancellation products, allowing GAP to be sold in connection with the financing of motorsports and powersports vehicles. It also allows the product to be sold on lease transactions.
The new Texas GAP law also states that finance sources can satisfy their GAP waiver refund obligations by providing written instructions to dealers and GAP administrators, and by ensuring that refunds or credits are made no later than 60 days after the termination of a debt-cancellation agreement.
The main thrust of the GAPA’s model act is to clarify that a GAP debt waiver is not insurance, according to Meenan P.A.’s Timothy J. Meenan. It also clarifies the roles of the dealer, the administrator and the creditor, ensures that GAP waivers contain clear coverage and disclosures as well as the correct structure to ensure consumers get the proper amount waived after their vehicle is totaled.
Considered one of F&I’s core products, GAP is designed to protect consumers by paying the difference between the value of their vehicle at the time it’s totaled (or stolen and not recovered) and the balance owed on the loan. For dealers, the product puts consumers who suffered a total loss of their vehicle back in the market for a new car.
Maine’s law states that a GAP waiver must either be included in the auto finance agreement or attached to it as an addendum. It also states that the waiver may be sold for a single or monthly payment, but “may not be considered a finance charge or interest” when disclosed in compliance with the Truth in Lending Act. The new law also states that the waiver must remain part of the finance contract when the contract is assigned, sold or transferred.
As for consumer protections, Maine’s new law requires that GAP waivers sold in the state include a 30-day “free-look” period in which the borrower can cancel the waiver and receive a full refund. The waiver contract must also provide clear instructions on how to obtain waiver benefits, and prohibits dealers and other creditors from requiring that consumers purchase the protection to obtain credit or to secure better terms.
Additionally, Maine’s GAP law says a consumer is entitled to a refund of any unearned portion of the purchase price of the waiver if it is canceled or the finance agreement is terminated early. If the latter happens, the law states that “the borrower must provide a written request within 90 days of the event terminating the finance agreement” to receive that refund. The waiver must also disclose the method for calculating the amount of the refund.
Berger said the alliance’s lobbying efforts are already in full swing in New Jersey and Wisconsin, noting that there are still more than 20 other states that have yet to define GAP as a waiver through legislation. Before the end of the year, he added, GAPA will create a new list of states to target in 2018.