Guaranteed Asset Protection, or GAP, has been a long- standing moneymaker for the F&I industry and a product that providers say is important for some consumers.
But a set of rule changes proposed by the Federal Trade Commission in June that targets certain dealership finance and insurance practices might mean GAP is in for some changes.
GAP bridges the monetary space between a vehicle owner's loan balance and the cash value of their car. For example, in the event of a total loss or heavy damage, GAP waives the amount left on a borrower's loan if the insurance won't cover it — generally due to value depreciation. It's a product most commonly offered to borrowers with negative equity on their vehicle.
Consumer groups have long argued the product is unnecessary and merely serves as another fee to take advantage of borrowers.
Dealers and F&I providers, however, say the product protects consumers. Some say GAP is akin to health insurance — good to have even if you don't need it. Additionally, GAP has been utilized by many consumers in times of devastation, such as in Hurricane Katrina.
A 2020 survey conducted by the National Automobile Dealers Association and the University of Michigan found that more than 90 percent of GAP policyholders called it a good idea and something they would buy again.
In Section 463.5 of the FTC's suggested rule changes, the commission proposed to "prohibit charging for add-on products that provide no benefit to the consumer." The proposal would ban the sale of GAP to any buyer "whose financing balance was so low that ordinary insurance would be adequate to cover any loss."
GAP providers say the proposal is unnecessary and that it would cause more change than the FTC intended. Konrad Koncewicz, business manager of BurlingtonCars.com Auto Group in Vermont, called the FTC's GAP language "extremely vague." A number developed in consultation with the industry might be "more workable," he said.
Maria Guttuso, vice president and general counsel for F&I provider JM&A Group, told Automotive News the calculations necessary under the FTC's proposal to determine a customer's GAP coverage would require a technology overhaul at many dealerships.
"If there's a certain loan-to-value at the time of sale, they don't want GAP to be sold," Guttuso said. "It's a calculation that, at the moment, dealers aren't capable of. It would involve a DMS system change, reprogramming … it's just not in current capabilities."
Beau Jarrett, Southeast zone vice president for JM&A Group, said the proposed GAP changes are too tight and don't take into account the unknowable depreciation rate of vehicles. He argues withholding GAP from customers at the time of purchase is doing a disservice to them later.
"I would sure love a crystal ball to know what it's going to do over the next couple of years," Jarrett said. "GAP is one of those products that changes with the used-car market tremendously, and we see it as one of the most widely purchased products at the F&I office."