As you may know, the recent Maine LD 1506 bill regarding the governance of GAP waivers has passed. The bill was signed by the governor (Public Law Chapter 178) on June 12, 2017 and the new law will apply to all GAP waivers that become effective on or after January 1, 2018.
Our partners at Frost Financial Services are long-time members of GAPA (Guaranteed Asset Protection Alliance). GAPA is an alliance of companies whose mission is to preserve the viability of the GAP industry, promote fair and equitable regulation of its members and their products and to continue to offer meaningful options to consumers who choose to purchase this protection.
Part of GAPA’s legislative initiative in Maine was to amend the Maine LD 1506 bill to protect financial institutions from requiring that GAP waiver contracts be cancelable with a pro rata refund. The initiative was successful and Maine state-chartered credit unions remain exempt and safe from this new requirement.
Why is this important?
This exemption essentially protects the viability and competitive market price for GAP waivers sold within the credit union channel. If state chartered credit unions were required to sell a refundable GAP product, pricing would need to increase dramatically to offset the refundability requirement. This could not only make the product harder to offer but, as a result, lead to increased delinquency exposure and reduced non-interest income for Maine credit unions.
Despite the exemption for state chartered institutions, passage of the GAPA Model Act does help clarify some important requirements that will ensure the long term viability of the GAP program. The key components of the GAPA Model Act include:
- Codifies that GAP waiver is not insurance;
- Codifies required disclosures;
- Provides that retail sellers are required to be backed by a Contractual Liability Insurance Policy (CLIP);
- Specifies requirements for a CLIP; and
- Specifies mandatory terms of a GAP waiver.