COLUMBIA, S.C. — As of Dec. 1, F&I offices operating in the state have a new set of rules to follow when selling guaranteed asset protection (GAP). While the new law mainly clarifies what GAP is and does, it also defines when the protection can be sold.
The state’s Guaranteed Asset Protection Act requires that GAP waivers sold in the state include a 30-day right to cancel. It also prohibits dealers and other creditors from requiring that consumers purchase the protection to obtain credit or to secure better terms. Consumers must also receive a written contract disclosing certain terms, such as the price, conditions and exclusions associated with the waiver in “clear, easily understandable language.”
Matthew Nowels, an attorney for Tallahassee, Fla.-based law firm Meenan P.A., said the new law mirrors the model act developed by the Guaranteed Asset Protection Alliance, which his firm manages. He said the trade group, which was formed in 2006 by providers of GAP waivers, initiated discussions with the South Carolina Department of Consumer Affairs this past December about amending state law to provide a framework within which GAP waivers are defined and may be sold.
“GAPA was the driving force,” he said. “We initiated this because we felt there wasn’t a lot of clarity in existing law.”
Not in the model act developed by GAPA were four restrictions on the sale of GAP the South Carolina Department of Consumer Affairs wanted included in the final version of Senate Bill 441, which was signed into law by Governor Nikki Haley on June 1.
One of those restrictions says dealers can only sell GAP in conjunction with a loan “unrelated to the purchase of a motor vehicle if the loan has an origination repayment term of more than 12 months and a principal loan amount greater than four thousand dollars.” Also added was a prohibition on the sale of GAP unless the selling dealer believes the consumer will be eligible for a benefit under the product.
Dealers are also prohibited from selling GAP waivers unless the consumer, credit terms, and the vehicle qualify under the terms of the waiver, and the amount financed — minus the cost of the GAP waiver and other F&I products — is “at least 80% of the manufacturer suggested retail price for a new vehicle or the National Automobile Dealers Association average retail value for a used vehicle.”
“While GAP waiver was authorized in South Carolina, there was not a substantive regulatory framework for companies to follow when offering the product,” Nowels added. “GAPA worked with the South Carolina Department of Consumer Affairs in order to establish that framework, which provides clarity as to how the product may be offered.”