As a car dealer in California, you are now subject to the new regulations set forth by Assembly Bill 2311. This bill has placed strict limitations on the offering of GAP coverage, the charges for GAP, and the creation of new disclosures for when the Loan-to-Value (LTV) exceeds the limit of GAP waivers. It is important to understand these new regulations and ensure that your dealership is in compliance to avoid any legal issues.
Here are the key points of the new law that you should be aware of:
• LTV must be no less than 70% (Section 2982.12(a)(5)(B)(iii)). This means that the amount financed by the buyer must not exceed 70% of the total value of the vehicle.
• If the amount financed does exceed the 70% LTV threshold, the buyer must sign a disclosure confirming that they are aware that the amount financed exceeds the GAP waiver’s maximum LTV, and that the GAP waiver will not cover the total remaining balance owed. (Section 2982.12(a)(5)(B)(ii))
• LTV is calculated by dividing the amount financed by the MSRP for a new vehicle or the average retail value for a used motor vehicle according to Kelley Blue Book, Edmunds, Black Book or NADA Guide.
• The maximum amount that can be charged for GAP waiver is capped at 4% of the amount financed by the buyer. (Section 2982.12(a)(5)(A))
• If the conditional sale contract (RISC) is assigned, the buyer must be notified in person or by mail of the assignee’s name and mailing address within 30 days of the assignment. (Section 2982.12(a)(4)(B)(i))
Another significant requirement under AB 2311 is a new notice, which must be presented with a heading at least 12-point bold type and with text in at least 10-point bold type, reading as follows:
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.
AB 2311 allows for recovery of three times the amount of any GAP charges paid by the consumer for a violation by the seller or holder of the sales contract.
As a dealer, it is important to consult with your compliance experts to ensure that you have the appropriate processes and controls in place to comply with the new law. This will help you avoid any legal issues and ensure that you are providing fair and transparent service to your customers. Additionally, make sure to train your sales team about the new regulations and have a clear process on how to handle these situations in the dealership. By staying informed and compliant, you can ensure a smooth buying experience for your customers and protect your dealership from potential legal issues.
