What is a Vehicle Value Protection Agreement?
Vehicle Value Protection Agreements (VVPAs) have become an increasingly popular add-on product offering for consumers purchasing a vehicle. VVPAs as a category can be broadly defined to encompass various agreements like total loss protection agreements, down-payment protection agreements, trade-in credit agreements, diminished value agreements and depreciation agreements.
VVPAs may offer a benefit in the event of a total loss, partial loss from an adverse event or accident, including, but not limited to, “loss, theft, damage, obsolescence, diminished value, or depreciation.” The agreement must specify when the benefit is triggered.
Vehicle Value Protection Agreement vs. GAP Waiver
While a VVPA may look like a GAP Waiver because similar terms are used, there are fundamental differences. A GAP Waiver is an addendum to the finance agreement that waives or cancels part of the debt owed in the event of a vehicle total loss. A VVPA is an add-on product that provides a benefit upon an event that adversely affects the cash value of the vehicle.
The benefit in a GAP Waiver is calculated based on the difference between the actual cash value of the vehicle and the outstanding balance of the finance agreement on the date of loss, subject to the terms and limitations of the GAP Waiver.
VVPAs are vaguely defined in the law, but they generally provide some benefit upon an adverse event, usually a total loss or partial loss, and are geared toward getting the customer into a replacement vehicle. The benefit usually comes in the form of a credit toward the purchase of a new vehicle or a credit added to the trade-in value of the covered vehicle. Sometimes this looks like a “GAP Plus” benefit without the GAP Waiver.
VVPAs and GAP Waivers often use similar terminology that can make understanding the benefits of each product difficult. Below is a breakdown of the triggering event, the benefit to the consumer, and the usage window.
Regulatory Landscape
Generally, when an agreement provides a benefit on some event, we are concerned that the agreement could be considered insurance unless there is a state law specifically indicating that it is not insurance. Regarding VVPA products, only nine states authorize the sale of VVPAs as non-insurance products, including:
| Alabama | Colorado | Florida | New York (regulatory opinions) | |
| North Carolina | Missouri | Oklahoma | Texas | Utah |
Accordingly, if a VVPA is sold in a state that does not authorize these products, lenders run the risk that they are insurance products.
While eight states have authorized VVPA by statute, New York has published opinions from the Attorney General, which provide guidance on how a VVPA could be offered in New York without being considered an insurance product. Additionally, F&I Sentinel has been tracking legislation in Georgia and Ohio in 2025 that could authorize VVPAs.
The states that currently allow VVPA products generally do so with various disclosure and refund requirements.
What Questions Should Lenders Ask When Evaluating VVPAs?
Regardless of whether a lender elects to fund or not fund VVPAs, this category of F&I product is here to stay. Therefore, it is crucial to recognize VVPA characteristics, thoroughly review the benefits and conditions in collaboration with legal experts before making a funding decision.
From a regulatory perspective, reviewing these F&I products with a fine-tooth comb ensures that, as the lender, you are in compliance with state and federal regulations and are safeguarding the consumers’ interest. It is imperative that any VVPA review process thoroughly accounts for all current state requirements to mitigate against possible UDAAP violations.
F&I Sentinel’s Concierge Compliance team continuously reviews a wide range of add-on products and vehicle service contract agreements. Some lenders we serve have opted to fund VVPAs, while others have chosen not to. Based on the work we do with our lender clients, we suggest the following considerations when evaluating whether to fund a VVPA.
Fundamentally, it is important to remember that regulators assess whether an add-on product provides benefit to consumers when determining the product’s permissibility. So keep this in mind when reviewing the often extensive coverage exclusions and stipulations included in VVPAs.
Cash Benefit Amounts:
- Transparency:
- Are the methods for calculating benefit amounts clearly defined and easy to understand?
- Is it clear how the benefit amount is calculated? Is it based on a set amount selected by the consumer or based on a third party’s calculation (such as the consumer’s insurance)?
Benefit Term:
- Time Limits: Does the agreement give the consumer a reasonable amount of time to submit a claim and use the benefit?
- For example, our team encountered a VVPA wherein the consumer had 60 days from the date of loss to submit the claim and was required to use the credit also within 60 days from the date of loss.
- Benefit Term: Does the benefit term length provide a benefit to the consumer?
- Consumer Awareness: Are consumers adequately informed about the time limits for submitting claims and using benefits?
Cancellations & Refunds:
- Cancelable and refundable: Best practices provide that add-on products should be cancelable and refundable at any time by the consumer. Be sure to consult internal or external legal counsel to check for state law requirements that may apply regarding cancellation procedures and calculations.
- Clarity of Terms: Are the terms and conditions written in plain language and easy for consumers to understand?
- Deceptive Language: Do any of the disclosures contain language that could be deemed deceptive or misleading?
As mentioned, VVPA coverages can be vague and left up to the dealer’s discretion. Reviewing for misleading phrasing or vagueness protects from UDAAPs and leaves limited doubt for consumer benefit.
Does the obligated party have to perform?
As a potential catch-all phrase, does the obligor’s discretion (in this case the dealer or the product company) limit their obligation to honor coverage?
- Claim Denial: Is there language that allow the obligor to deny claims at their discretion?
- With vague disclosures come subjective decision-making. For example, an obligor could deny coverage because of a modification placed on the vehicle that they determined to have a negative effect.
- Trade-Ins: Does the agreement allow for the dealer to decide whether they can accept or reject a vehicle upon trade-in?
- If the obligor isn’t required to accept the vehicle when trading it in, this could potentially limit any use of the credit provided.
Solely having the exclusions is just one part of the bigger picture. Consult with internal or external counsel when reviewing these exclusions to determine whether the VVPA still provides benefit to the consumer. To avoid vague and undefined limitations, ensure the VVPA clearly states any exclusions or conditions in which a claim could be denied or a vehicle would not be accepted.
Requirements and Exclusions:
- Listed Exclusions: Does the agreement include specific exclusions, rather than solely leaving it up to the obligor’s discretion?
- Several states with VVPA legislation specify that the exclusions must be stated in the agreement
To avoid vague and undefined limitations, ensure the agreement clearly states any exclusions or conditions in which a claim could be denied or a vehicle would not be accepted.
How does this affect auto lenders?
The prospect of violations and costly penalties come from both sides of the coin:
- State Regulation: Regulator and insurance
A state may consider this VVPAs insurance if there is no a law expressly stating that it is not insurance or if it is offered incorrectly.
It is important for the VVPA to be written in compliance with any applicable VVPA laws because if the product is written incorrectly, the state could consider the product insurance, or consider it another type of add-on product and non-compliant with their related laws.
The lender could face legal action for financing an insurance product, a noncompliant product, or product susceptible to UDAAP violations.
- Federal Regulation:
FTC Holder in Due Course Rule: Under the FTC’s Holder in Due Course Rule, the legal claims brought against the original seller of a contract—typically the dealership—can also be asserted against the auto lender that purchases the contract. This means that lenders could find themselves on the hook for UDAAP violations if they fund VVPAs containing deceptive language.
CFPB: The new administration in early 2025 made sweeping changes in regulatory priorities, including those of the CFPB. However, even with flux in leadership there, the CFPB is expected to remain.
It is critical to avoid interpreting federal regulatory changes as a signal to relax compliance efforts; it would be imprudent for lenders to plan in four-year cycles. As history has shown, regulatory issues can have long tails, with some lenders still addressing examination findings from a decade ago.
Case in point: The October 2024 edition of the CFPB Supervisory Highlights, focused exclusively on the auto finance sector, remains pertinent. It underscored the bureau’s scrutiny of add-on products and suggested assignee lenders be held accountable. In one example, it was stated that the auto finance company was found to be at fault because it “had failed to conduct comprehensive compliance monitoring of the service providers.”
About F&I Sentinel
F&I Sentinel empowers auto-finance companies, auto dealers, and F&I product companies with dynamic, technology-driven compliance solutions that reduce friction, enhance transparency, and streamline aftermarket product management. Over 100 auto-finance companies, including six of the top 10, and over 600 F&I product administrators, count on F&I Sentinel to deliver scalable infrastructure and best-in-class regulatory expertise to efficiently manage the lifecycle of aftermarket products—from funding to cancellation—in a rapidly evolving regulatory landscape. Learn how our repository of more than 190,000 F&I product forms and our Concierge Team can support your F&I product management journey here. Schedule a no-obligation meeting with a member of our Concierge Team today.
The information provided in this post does not, and is not intended to, constitute legal advice; instead, all information, content, and materials referenced are for general informational purposes only. Readers should contact their attorney to obtain advice with respect to any particular legal matter.
