Compliance EFG Companies Government Regulations

Targeting GAP

If you look at the flurry of GAP-related state-level legislative bills proposed so far in 2022, you could surmise that this consumer protection tool is under fire. According to American Financial Services Association Senior Vice President Danielle Arlowe, the organization has counted 30 pieces of legislation in 2022, compared to 14 bills between 2019 – 2021. These new legislative efforts join existing statutes on the books in 11 states which require the lender to refund a consumer who cancels financed GAP coverage.

At the federal level, officials have again raised the issue that bundled GAP coverage renders the auto loan to be under the purview of the Military Lending Act (MLA). The Consumer Financial Protection Bureau, Department of Defense, and Department of Justice recently argued in the class-action lawsuit Davidson vs. United Auto Credit that loans containing a nonexempt product such as GAP would not be exempt from MLA.

These developments put retail automotive lenders in a difficult position. For example, the California Assembly Bill AB 2311 requires that customers be notified that GAP insurance is an option and requires that lenders automatically refund any GAP balances if the loan is paid early. Other components of the bill stipulate a cap on the price of the GAP insurance as well as banning its sale under certain criteria related to the amount financed. Arlowe believes the industry is at a turning point with GAP insurance and the relationship between creditor, dealer, and administrator.

Business Growth Compliance

Finding the Perfect Balance

Brien Joyce Vice President EFG Companies
Contributing Author:
Brien Joyce
Vice President
EFG Companies

From the very first time one person loaned another person their hard-earned money or goods, there has been a level of risk on whether they would ever see their money or property again. As the lender, finding that balance between risk and reward created the concepts of payment plans, requiring borrowers to pay back more than the total amount they originally received, as well as sophisticated algorithms for lenders to use to determine how lenient or restrictive to make their lending policies.

We are currently in a highly contemplative and speculative time when it comes to determining that perfect balance in auto finance. After seven consecutive years of vehicles sales gains, the National Automobile Dealers Association (NADA) is forecasting that vehicle sales will total out at 17.1 million new vehicles in 2017, slightly lower than total sales in 2016. This plateau could extend into 2018, or we could potentially even see the beginnings of a period of decline, or even a period of growth and expansion. It could go either way.

Lending practices differ greatly depending on whether an economy is expanding, plateauing, or declining. Hence, the period of reflection. Of course, a plateau at 17.1 million vehicles means that the consumer appetite for auto finance is still strong.

According to Experian’s latest State of Auto Finance Market Report, the total automotive open loan balance reached another record high in the second quarter of 2017, topping $1.1 billion. Average loan amounts remained high across all credit tiers, as well as across both new and used vehicles.