California this month established new limits on guaranteed asset protection sales with two new laws, including one an opponent predicted would reduce GAP sales to service members.
Assembly Bill 2311, signed into law Sept. 13 by California Gov. Gavin Newsom, caps the price of GAP and bans its sale in certain situations. It also requires lenders to refund charges automatically when consumers cancel the finance-and-insurance product or pay off their auto loans.
GAP coverage pays any loan balance not reimbursed by traditional auto insurers, who are only obligated to cover the vehicle's actual value, in the event of a total loss. Like other F&I products, it is often bundled and financed within auto loans rather than purchased separately.
But Senate Bill 1311 would void a lender's security interest in a vehicle if "the loan also funds the purchase of a credit insurance product or credit-related ancillary product" sold to a service member. Coverage including GAP and credit life/accident and health insurance, which handles debt if something disastrous happens to the borrower, would seem to fall under the scope of this language, according to Stephen McDaniel, founder and CEO of compliance provider F&I Sentinel.
SB 1311 passed both chambers of the California Legislature unanimously in August and reached Newsom on Aug. 30. The Democratic governor announced Tuesday he had signed it.
Guaranteed Asset Protection Alliance Executive Director Tom Keepers argued last week that the Legislature had created a new regulatory framework for GAP with House Bill 2311 yet prevented the military from buying the product with Senate Bill 1311.
"It's really kind of a cruel irony," he said.