The California Attorney General Needs To Learn About Gap Insurance

California Attorney General Rob Bonta and Assembly member Brian Maienschein announced Assembly Bill 2311 (AB 2311), which will establish a number of new protections for car buyers. AB 2311 addresses the sale and administration of guaranteed asset protection (GAP) waivers, a costly add-on product of little value to consumers that is often sold by car dealers along with auto loans and is generally targeted at consumers with lower incomes and subprime credit.

FOR THE AMOUNT OF COVERAGE YOU GET, IT IS ACTUALLY ONE OF THE MOST AFFORDABLE POLICIES YOU CAN BUY.  I’VE SEEN PEOPLE WHO HAD TO CONTINUE TO PAY A CAR PAYMENT FOR THREE YEARS AFTER THEIR CAR WAS TOTALED.

Authored by Assembly member Maienschein and sponsored by Attorney General Bonta, AB 2311 will require creditors to automatically refund the unearned portion of a GAP waiver if a consumer pays off or otherwise terminates their auto loan early, among other protections.

“When Californians walk into a dealership to buy a car, they should feel confident that they’re not getting ripped off,” said Attorney General Bonta. “Unfortunately, auto dealers often play off our anxieties around making this big purchase, convincing us to add on unnecessary products for hundreds of additional dollars. Paying off your auto loan is hard enough without these junk products tacked on. I am proud to sponsor AB 2311 to strengthen California's consumer protection laws and prevent vulnerable car buyers from being taken advantage of.”

JUNK PRODUCT?  TELL THAT TO THE PEOPLE WHOSE INSURANCE COMPANY PAID THEM $10,000 LESS THAN WHAT THEY OWED ON THEIR VEHICLE.

“Despite their name, GAP waivers hardly provide the bare minimum protections for the car buyer,” said Assembly member Maienschein. “This bill will ensure that car buyers are covered through stricter consumer protection laws, helping them avoid this costly add-on when unnecessary.”

GAP waivers provide car buyers with minimal protections: providing that if their car is wrecked or stolen, the creditor must waive the portion of the auto loan, if any, that exceeds the value of the vehicle. For most consumers, GAP waivers are a bad deal, making sense only if they are already underwater on their loan. Consumers make a one-time, up-front payment often ranging from $400 to $700 for GAP coverage that is typically financed at a high interest rate, burying consumers in additional, often avoidable debt. Currently, California law does not specifically address the rights and responsibilities of consumers and sellers in the sale and administration of these products, opening the door to unfair practices and limiting competition.

WHAT A GENERALIZATION!  WHO ISN’T “UNDERWATER” THESE DAYS WITH MOST CARS SELLING FOR OVER MSRP.  WHAT MAKES THEM THINK PEOPLE ARE TYPICALLY FINANCING AT A HIGH INTEREST RATE?  

If signed into law, AB 2311 would strengthen protections for car buyers by: 

• Requiring creditors to promptly refund the unearned, prepaid GAP waiver charges if the loan or waiver agreement is terminated early;

NO PROBLEM HERE, REFUNDS SHOULD BE ISSUED WITHIN 10 DAYS OF THE LOAN IS PAID OFF

• Capping the amount that can be charged for a GAP waiver relative to the amount of the loan amount;

SOME LOANS ARE RISKIER THAN OTHERS.  A LOAN FINANCING $5000 OVER THE COST OF THE CAR SHOULD HAVE A HIGHER PREMIUM THAN A LOAN AT MSRP OR LESS, THERE IS MORE EXPOSURE.

• Preventing partial waivers and valueless waivers from being sold as GAP waivers;

 NO IDEA WHAT THEY ARE TALKING ABOUT.  GAP IS AN INSURANCE POLICY JUST LIKE COLLISION AND LIABILITY INSURANCE.

• Requiring auto dealers to make important disclosures to consumers regarding GAP waivers, including that the product is entirely optional and cannot be a condition to the loan or sale terms;

THIS IS DONE NOW.  IF CONSUMERS ACTUALLY READ WHAT THEY SIGN, IT IS CLEAR THERE IS A CHARGE FOR THE INSURANCE, JUST LIKE EVERY INSURANCE POLICY PURCHASED, WHETHER HOME, LIFE, AUTO, OR MEDICAL.

Source: Press release.