Fortegra Compliance Roundup: The Latest on GAP Regulations

Fortegra's compliance experts can help you stay up to date on new legal changes in the Automotive F&I industry. Read our regular compliance updates to stay informed.

Staying on top of regulatory updates in the Automotive F&I industry is critical to the success of your business. We’ve got you covered, making sure you stay in the know as industry compliance evolves.

This month, our experts offer up more news on important Guaranteed Asset Protection rulings. Check out the latest on GAP below.

GAP: Arkansas HB 1672

GAPA’s initiative. The bill largely follows the GAPA model act as it codifies: 

• GAP waiver is not insurance;
• Required disclosures;
• A free look period is required on a GAP waiver, cancelation options beyond the free look period must be disclosed;
• Retail sellers must insure their obligations with a CLIP; CLIP is optional for other creditors and for GAP waivers on leases;
• A GAP waiver must be optional; the extension of or terms of credit or lease may not be conditioned upon the purchase of a GAP waiver;
• Requirements for a CLIP;
• That in order to receive an early termination refund, the borrower must provide a written request;
• The cost of a TILA compliant GAP waiver must be separately stated and is not considered a finance charge or interest;
• Penalties for violations;
• An exemption from required disclosures and regulator enforcement provisions for commercial transactions.
• However, the legislation differs from the model act in that this bill authorizes a cancellation fee of no more than $75. Also, the bill requires a disclosure that the cost of the GAP waiver is not regulated and that the borrower should determine whether the cost of the GAP waiver is reasonable.

Legislative Update/Movement: 4/8/2019 – Approved by the Governor

Effective Date: August 4, 2019

Licensing Impact: N/A 

Product/Program Impact: GAP Waivers

Consumer Contract Impact: Required disclosures must be included

Action: Review bill for required disclosures and make revisions to AR GAP Waivers, if applicable 

GAP: Kansas Administrative Interpretation No. 1004 Revision

Kansas has apparently revised their Administrative Interpretation No. 1004 regarding GAP.  The Administrative Interpretation provides guidelines that must be followed for creditors to exclude the cost of Guaranteed Asset Protection (“GAP”) waiver agreements from the calculation of the finance charge with consumer credit sales and closed-end consumer loans pursuant to the Uniform Consumer Credit Code.

The 2019 Interpretation is identical to the 2012 version except one required provision.  The 2019 revised language is as follows:

The GAP waiver agreement must contain a statement advising Kansas consumers how to contact the GAP provider with claims for GAP coverage, and that information shall be printed in bold font. The word “claims” shall be bolded and underlined. The form must also advise Kansas consumers that they may contact the Kansas Office of the State Bank Commissioner with complaints about their GAP waiver agreement at 700 SW Jackson, Suite 300, Topeka, KS 66603, http://www.osbckansas.org/. The word “complaints” should be bolded and underlined.

The amended interpretation applies to all GAP waiver agreements executed on and after May 15, 2019. 

Legislative Update/Movement: 5/21/2019 – Kansas Office of the State Bank Commissioner - All forms have until January 1, 2020 to be compliant with the new interpretation.  Until that time, forms that were compliant with the old interpretation will be considered compliant and the cost of GAP may continue to be excluded from the finance charge when using such forms until January 1, 2020. 

Effective Date: 1/1/2020

Licensing Impact: N/A 

Product/Program Impact:  GAP Waivers

Consumer Contract Impact: Required disclosures must be included

Action: Review Administrative Interpretation for required disclosures and make revisions to KS GAP Waivers, if applicable 

GAP: Texas SB 1778/HB 2847 

Adds a new chapter to the Rental Practices subtitle of the Business and Insurance Code to govern excess loss damage waivers in connection with the lease of motor vehicles. The bill allows a lessee to contract with a lessor for an optional excess wear and use waiver in connection with a lease agreement. A lease agreement that offers such a waiver must include the following notice:

This excess wear and use waiver is optional, not a condition of leasing the vehicle, and is being provided for an additional charge to cover your responsibility for any excess wear and use to the leased vehicle.

The agreement must also state the total charge for the waiver. 

The bill provides civil penalties for violations and authorizes injunctive relief for persons threatened with injury by a violation of the chapter. The attorney general or distinct attorney may bring action for civil penalty or injunctive relief. 

Finally, the bill declares that such a waiver is not insurance.

Legislative Update/Movement:  6/10/2019 – Signed by the Governor

Effective Date: September 1, 2019

Licensing Impact: N/A

Product/Program Impact:  Excess Wear and Use Waiver

Consumer Contract Impact: Notice must be included on program offerings

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We hope that these recent rulings help you conduct your Automotive F&I business with complete, informed compliance. Check back for more compliance updates from Fortegra’s team of industry leaders in our nextnewsletter!

Disclaimer: With the understanding this shall not be construed as legal advice on the compliance of your programs, this newsletter does not contain information for all legislation that may affect a provider or administrator. You should review legislative bills in their entirety to determine the impact and what actions are needed, if any, to comply with state laws/regulations.