Bill Analysis — Senate Bill 425, GAP and VVPA Agreement Changes (May 5, 2021)

Summary

Bill analysis of Senate Bill 425, GAP and VVPA Agreement Changes, for the Senate Commerce and Insurance committee, dated May 5, 2021. It states the bill would modify the law governing the regulation of guaranteed asset protection waivers and regulate vehicle value protection agreements. Section 3 would enact a new Article 48 in Chapter 66 of the General Statutes, which would include a minimum 30-day look back period during which the purchaser may cancel the agreement and receive a full refund so long as no benefits have been provided, and enforcement by the Attorney General and fines for violations. The act becomes effective January 1, 2022.

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                                                     SENATE BILL 425:
                                                     GAP and VVPA Agreement Changes.
      2021-2022 General Assembly
     Committee:     Senate Commerce and Insurance. If favorable, Date:            May 5, 2021
                    re-refer to Judiciary. If favorable, re-refer to
                    Rules and Operations of the Senate
     Introduced by: Sens. Woodard, Perry, Johnson                    Prepared by: Bill Patterson
     Analysis of:   First Edition                                                 Staff Attorney

     OVERVIEW: Senate Bill 425 would modify the law governing the regulation of guaranteed asset
     protection waivers and regulate vehicle value protection agreements.
     CURRENT LAW: Article 46 of Chapter 66 of the General Statutes regulates guaranteed asset protection
     (GAP) waivers. For purposes of Article 46 a GAP waiver is defined as a contractual agreement in which
     a creditor agrees, for a separate charge, to cancel or waive all or part of the deficiency in the balance due
     on a borrower's vehicle in the event of a total loss or unrecovered theft of the vehicle, after crediting any
     applicable insurance coverage. Any cost to the borrower for a GAP waiver must be separately stated and
     is not to be considered a finance charge or interest.
     BILL ANALYSIS:
     Section 1 would modify the existing definition of a GAP waiver to apply whether or not the debtor paid
     an additional fee to the creditor, and would expand the definition to also apply to:
                         •      An agreement by the creditor, with or without an additional fee, to waive or give the
                                borrower a credit for some amount towards the purchase of a replacement vehicle.
                         •      An agreement by the creditor, with or without a separate charge, to cancel or waive all or
                                part of the amount otherwise due under a borrower's lease agreement owing to excessive
                                wear and use of a vehicle or for excess mileage.
     Section 2 would provide that the cost of a GAP waiver is deemed to be an authorized charge that may be
     financed under the Retail Installment Sales Act, Chapter 25A of the General Statutes, and shall not be
     considered a part of the finance charge or interest thereunder.
     Section 3 would enact a new Article 48 in Chapter 66 of the General Statutes regulating the offering of a
     "vehicle value protection agreement," which would be defined as a contractual agreement that would,
     upon the occurrence of an "adverse event," providing a benefit of either:
            •     A reduction of the contract holder's current finance agreement deficiency balance.
            •     A credit toward the purchase or lease of a replacement vehicle or purchase of motor vehicle
                  services.
     The "adverse event" triggering the right to the benefit would include, without limitation, "loss, theft,
     damage, obsolescence, or diminished value or depreciation" of the vehicle subject to the agreement, but
     would not include a debt waiver.


                                                                                                                                                             Legislative Analysis
     Jeffrey Hudson
                                                                                                                                                                   Division
         Director                                           S425-SMTG-54(e1)-v-2                                                                               919-733-2578
This bill analysis was prepared by the nonpartisan legislative staff for the use of legislators in their deliberations and does not constitute an official statement of legislative intent.
Senate Bill 425
Page 2

New Article 48 would include the following provisions:
   •     Required disclosures to the borrower.
   •     Minimum financial solvency requirements for insurers issuing reimbursement policies.
   •     A minimum 30-day look back period during which the purchaser may cancel the agreement and
         receive a full refund so long as no benefits have been provided.
   •     Provisions governing cancellation of the vehicle value protection agreement and the processing of
         any refund.
   •     Enforcement by the Attorney General and fines for violations.
EFFECTIVE DATE: This act becomes effective January 1, 2022, and applies to agreements entered
into on or after that date.


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