California Gov. Gavin Newsom has now signed AB 2311 into law. By January 1, 2023 – just over three months from now – all GAP waivers sold in California must comply with the bill’s requirements. The legislation provides a number of new requirements and disclosures for GAP waivers financed in California, including a requirement for the following notice in at least 10-point bold text with a 12-point bold type heading:
STOP AND READ:
YOU CANNOT BE REQUIRED TO BUY A GAP WAIVER OR ANY OTHER OPTIONAL ADD-ON PRODUCTS OR SERVICES. IT IS OPTIONAL.
NO ONE CAN MAKE YOU BUY A GAP WAIVER OR ANY OTHER OPTIONAL ADD-ON PRODUCTS OR SERVICES TO GET FINANCING, TO GET CERTAIN FINANCING TERMS, OR TO GET CERTAIN TERMS FOR THE SALE OF A VEHICLE.
IT IS UNLAWFUL TO REQUIRE OR ATTEMPT TO REQUIRE THE PURCHASE OF THIS GAP WAIVER OR ANY OTHER OPTIONAL ADD-ON PRODUCTS OR SERVICES.
The new law also imposes several limitations on when a GAP waiver may be sold and financed, including not allowing the sale when the loan-to-value ratio of the transaction exceeds any loan-to-value cap in the GAP waiver, or when the amount financed exceeds the maximum dollar amount covered by the GAP waiver. Finally, the new law includes mandatory refunds for cancellation and termination of a GAP waiver, and dictates the specific refund calculation for prorated refunds:
“calculating a refund on a pro rata basis” shall require multiplying the total dollar amount of guaranteed asset protection waiver charges by the quotient of the number of calendar days from the termination date to the conditional sale contract’s original full-term date, including the termination date as a full calendar day, divided by the total number of calendar days in the conditional sale contract’s original term.
Finally, any notice required by state law in connection with a payoff letter, payoff quote, or repossession must either identify the unearned portion of the amount paid for the GAP waiver or conspicuously state that the buyer is entitled to a refund of the GAP fee and that the buyer should contact the administrator or other designated person for identification of the amount of the refund.
Is your company prepared to ensure that GAP waivers financed in the State of California comply with these sweeping revisions of California’s requirements? F&I Sentinel’s CITADEL® solution provides you with the protection needed to ensure that your loan portfolio is not infected with non-compliant GAP waivers and other F&I products.
