Bank-generated General Automobile Protection (GAP) contracts cannot be sold unless customers sign a written permission form, according to a new regulation from the U.S. Treasury Department.
The regulation also requires oral disclosures about the terms, conditions and benefits of GAP products.
The Treasury Department makes it clear that GAP products offered by captive lenders or third-party providers are not affected. The regulation is aimed solely at bank-sponsored contracts.
The Chicago Automobile Trade Assn. says banks “sometimes urge sale of GAP agreements to reduce their risks in questionable deals — primarily those with impaired-credit borrowers.”
But the association fears the new federal regulation will give attorneys of potential plaintiffs “another avenue to pursue cases in which they argue that retailers did not make proper disclosures.”
GAP covers the difference between a loan or lease contract's agreed-upon payment and market value of vehicles that have been stolen, totaled or repossessed during the term of the contract. Some contracts also cover defaults on payments that have resulted in deficits over specified amounts between the amount paid in and the market value.
