New California law targets GAP exemption

California Attorney General Rob Bonta didn’t chop words when stating his position that consumers should be protected from the Guaranteed Asset Protection (GAP) exemption.This trend continued with his sponsorship AB2311written by California State Rep. Brian Meyenschein.

Bonta says: Unfortunately, auto dealers often cover our misgivings about this big purchase and convince us to pay hundreds of dollars extra to add products we don’t need. Paying off a car loan is hard enough without adding in these junk products. ”

California Bill AB 2311 was signed into law by California Gov. Gavin Newsom on September 13 and takes effect January 1, 2023. Regulates his GAP exemption sold in connection with a conditional sale contract (CSC) and gives GAP exemption owners, sellers and providers his 90+ day compliance period. The bill, which amends sections 2981-2983.1 of the California Civil Code, includes requirements for both the initiating and serving/terminating sides of the bilateral GAP exemption. Not applicable to GAP insurance.

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Commencement requirements apply to GAP exemptions commencing on or after January 1, 2023. The required disclosure requirements are similar to those found in other state GAP exemption laws. These include: a separate itemization of his GAP costs funded, a statement that the GAP waiver is optional, and that the CSC holder is a contracting party to his GAP waiver. , and the name and mailing address of the seller and manager.

The latter three should be listed in a separate document from the CSC. You must also include a bold, capitalized statement immediately above the signature line on the contract advising the consumer to “stop and read” and reminding the consumer that purchasing a GAP waiver is optional. It cannot influence the consumer’s financial terms. It is illegal for sellers to require purchases.

In particular, California enforces more origination restrictions than other states by banning the sale of GAP waivers when they do not or only partially cover the gap amount, and by controlling the cost of GAP waivers. is being strengthened. The GAP exemption fee cannot exceed his 4% of the amount a buyer finances under her CSC.

In addition, GAP exemptions cannot be sold if: (b) if the loan-to-value (LTV) ratio on contract date exceeds the maximum LTV ratio subject to his GAP waiver; (c) the amount of funding is less than his 70% of the suggested retail price of a new vehicle or the average retail price of a used vehicle, as determined by nationally accepted pricing;

In a related bill in the California Senate SB1311, Section 408.1 of California’s Military and Veteran Code was amended to provide that a security interest in a retail transaction of a motor vehicle, including credit insurance or other credit-related ancillary products (including, but not limited to, GAP waivers), is subject to Acquired by an “Eligible Member” as defined in the Military Lending Act under Title 987.

This is important as the holder may recover the installments of the contract but cannot take back the collateral, effectively making it an unsecured contract. This removes the service member’s option to purchase her GAP waiver in California. Holders are also working on ways to logically identify which consumers are active members of the military.

Service and Termination

Service and termination requirements apply regardless of when they are entered into the GAP Waiver effective after January 1, 2023. These requirements are stricter than those found in most other states.

Upon written notice to the purchaser of an itemized contractual balance, including in a payoff letter, payoff quote, or written notice required after remand, the holder of a CSC containing a GAP waiver shall be entitled to the amount of any pro rata credit or refund. must be specified separately. This is the buyer’s responsibility if the GAP exemption is canceled on a particular date.

This requirement may also be accomplished by informing the consumer to contact the GAP Waiver Administrator for the amount of such refund. Within 60 business days of the termination of the GAP Waiver, the Owner must make the required refund or issue a refund by directing the refund in writing to Management. Cancellation fees, surrender charges, or similar fees may not be charged when the GAP waiver is terminated.

If a holder of a CSC containing a GAP exemption breaches the refund or cancellation fee provisions of the new regulations, the purchaser may recover from the holder an amount equal to three times the GAP exemption fee paid.

As more states continue to regulate GAP waivers, especially GAP waiver refunds, many holders with national platforms are discussing or beginning to adopt automatic refund models in the 50 states.

Using some of the strictest laws as a base, many of California’s regulations are likely to become owner refund practices in other states as well. , most of the industry is proposing to generally inform consumers that they may be entitled to a refund of the unearned portion of the GAP waiver in order to meet California requirements. increase. Instruct them to check their balance and contact their administrator for the exact amount.

In addition, it is suggested that owners notify management in writing that their GAP waiver has ended and a refund is required. Best practice for holders is to keep a copy of both the written notification and proof that the refund has been issued to the consumer by the controller.