California Attorney General Rob Bonta last week tore into guaranteed asset protection coverage and backed a new bill to regulate the auto finance and insurance product.
An attorney general's office news release Feb. 16 called GAP "a costly add-on product of little value to consumers" and "a bad deal" unless a customer was underwater on a loan. It promoted Assembly Bill 2311, which would establish new rules for GAP sales and cancellation in California.
"When Californians walk into a dealership to buy a car, they should feel confident that they're not getting ripped off," Bonta, a Democrat, said in a statement Feb. 16. "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."
Asked about the harshness of these comments, Bonta's press office said some GAP could have value.
"AB 2311 establishes guardrails so that consumers can benefit from GAP waivers without being subjected to unfair and predatory practices," Bonta's press office wrote in an email to Automotive News on Tuesday. "Industry participants who sell GAP waivers on reasonable terms will benefit from the equal playing field AB 2311 establishes. AB 2311 does not limit consumers' access to fair and beneficial products."
GAP coverage pays any loan balance not reimbursed by traditional auto insurers — which are only obligated to cover the actual value of the vehicle — after a total loss. Guaranteed Asset Protection Alliance Executive Director Tim Meenan, of Meenan P.A., said this protection had value.
"There are substantial claims paid under GAP contracts," Meenan told Automotive News on Tuesday.
It's also common knowledge that a new car depreciates, Meenan said, giving the example of a $30,000 loan for a vehicle totaled two weeks after the vehicle's purchase. The property and casualty insurer might only reimburse a vehicle value of $25,000, leaving the consumer owing $5,000. A "single working mother" can't afford a replacement vehicle while still paying off the balance of the old loan, he said.
"It creates substantial financial pressure," he said.
Vehicles normally depreciate between 10 and 20 percent annually, according to Black Book Senior Vice President and Chief Data Science Officer Alex Yurchenko.