HB420

ENROLLED, An Act,

To specifically authorize and regulate guaranteed asset protection waivers related to motor vehicle loans; to define terms; to provide for enforcement and civil penalties by the Superintendent of Banks; and for this purpose to add Chapter 37 to Title 8, Code of Alabama 1975.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:

Section 1. Chapter 37 is added to Title 8, Code of Alabama 1975, to read as follows:

CHAPTER 37.

§8-37-1.

(a) The purpose of this act is to define guaranteed asset protection waivers (GAP waivers) and to provide that GAP waivers may be offered within this state.

(b) This act does not apply to either of the following:

(1) An insurance policy offered by an insurer under the insurance laws of this state.

(2) A debt cancellation or debt suspension contract being offered by a federally regulated financial institution operating under 12 CFR Part 37 or a credit union operating under 12 CFR Part 721 or other federal law; or a debt cancellation or debt suspension contract being offered by a state chartered bank or credit union. Debt cancellation and debt suspension contracts being offered by any of these federal or state regulated financial institutions are not insurance and are exempt from the insurance laws of this state.

(c) Guaranteed asset protection waivers governed under this act are not insurance and are exempt from the insurance laws of this state. Persons marketing, selling, or offering to sell guaranteed asset protection waivers to borrowers that comply with this act are exempt from insurance licensing and insurance regulation requirements of this state.

(d) This act applies only to GAP waivers for financing of motor vehicles as defined in this act. This act does not affect the validity or enforcement of other asset protection waivers, debt cancellation contracts, or debt suspension agreements.

§8-37-2.

For the purposes of this act, the following words have the following meanings:

(1) ADMINISTRATOR. A person, other than an insurer or creditor, that performs administrative or operational functions pursuant to guaranteed asset protection waiver programs.

(2) BORROWER. A debtor, retail buyer or lessee, under a finance agreement.

(3) CREDITOR means any of the following:

a. The lender in a loan or credit transaction.

b. The lessor in a lease transaction.

c. Any retail seller of motor vehicles provided that the entities comply with the provisions of this act. in a retail installment transaction.

d. The seller in commercial retail installment transactions.

e. The assignees of any of the foregoing to whom the credit or lease obligation is payable.

(4) FINANCE AGREEMENT. A loan, lease, or retail installment sales contract for the purchase or lease of a motor vehicle.

(5) FREE LOOK PERIOD. The period of time from the effective date of the GAP waiver until the date the borrower may cancel the GAP waiver without penalty, fees, or costs to the borrower. This period of time shall not be shorter than 30 days.

(6) GUARANTEED ASSET PROTECTION WAIVER or GAP WAIVER. A contractual agreement in which a creditor agrees for a separate charge to cancel or waive all or part of amounts due on a borrower's finance agreement in the event of a total physical damage loss or unrecovered theft of the motor vehicle, which agreement shall be part of, or a separate addendum to, the finance agreement.

(7) INSURER. An insurance company licensed, registered, or otherwise authorized to do business under the insurance laws of this state.

(8) MOTOR VEHICLE. Self-propelled or towed vehicles designed for personal or commercial use, including but not limited to automobiles, trucks, motorcycles, recreational vehicles, all terrain vehicles, snowmobiles, campers, boats, personal watercraft, and motorcycle, and boat, camper and personal watercraft trailers.

(9) PERSON. An individual, company, association, organization, partnership, business trust, corporation, and every form of legal entity.

§8-37-3.

(a) GAP waivers maybe may be offered, sold, or provided to borrowers in this state in compliance with under this act.

(b) GAP waivers, at the option of the creditor that offers the GAP waiver, may be sold for a single payment or may be offered with a monthly or periodic payment option.

(c) Notwithstanding any other provision of law and subject to Section 8-37-7, any cost to the borrower for a GAP waiver entered into in compliance with The Truth in Lending Act, 15 USC 1601 et. seq., and its implementing regulations, as they may be amended from time to time, shall be separately stated and is not to be considered a finance charge or interest. If the charge for a GAP waiver is financed, the charge shall be separately itemized on the finance agreement.

(d) A retail seller shall insure its GAP waiver obligations under a contractual liability or other insurance policy issued by an insurer. A creditor, other than a retail seller, may insure its GAP waiver obligations under a contractual liability policy or similar policy issued by an insurer. Any insurance policy may be directly obtained by a creditor, retail seller, or may be procured by an administrator to cover a creditor's or retail seller's obligations under the GAP waiver. However retail sellers who do not assign their finance agreements or retail sellers that are lessors of motor vehicles are not required to insure obligations related to GAP waivers on the sold or leased vehicles.

(e) A GAP waiver remains a part of the finance agreement upon the assignment, sale, or transfer of the finance agreement by the creditor. The creditor, administrator, or other designated party shall maintain for three years after the maturity date of the finance agreement a copy of or electronic details of each GAP waiver sold regardless of the method of payment and the creditor administrator, or other designated party shall provide copies of or electronic details of the contracts to the Superintendent of Banks upon reasonable advance written notice.

(f) Neither the extension of credit, any term of credit, nor the term of the related motor vehicle sale or lease may be conditioned upon the purchase of a GAP waiver.

(g) Any creditor that offers a GAP waiver shall report the sale of, and forward funds received on all waivers to the designated party, if any, as prescribed in any applicable administrative services agreement, contractual liability policy, other insurance policy, or other specified program documents.

(h) Funds received or held by a creditor or administrator and belonging to an insurer, creditor, or administrator, pursuant to the terms of a written agreement shall be held by the creditor or administrator in a fiduciary capacity.

§8-37-4.

(a) A contractual liability or other insurance policy insuring a GAP waiver shall state the obligation of the insurer to reimburse or pay to the creditor any sums the creditor is legally obligated to waive under the GAP waiver issued by the creditor and purchased or held by the borrower.

(b) Coverage under a contractual liability or other insurance policy insuring a GAP waiver shall also cover any subsequent assignee upon the assignment, sale, or transfer of the finance agreement.

(c) Coverage under a contractual liability or other insurance policy insuring a GAP waiver shall remain in effect unless cancelled or terminated in compliance with applicable insurance laws of this state.

(d) The cancellation or termination of a contractual liability or other insurance policy shall not reduce the insurer's responsibility for GAP waivers issued by the creditor prior to the date of cancellation or termination and for which premium has been received by the insurer.

§8-37-5.

Subject to Section 8-37-7, a creditor that offers a GAP waiver shall disclose, as applicable, in writing and in clear, understandable language that is easy to read, all of the following:

(1) The name and address of the initial creditor and the borrower at the time of sale and the identity of any administrator if different from the creditor.

(2) The purchase price and the terms of the GAP waiver, including without limitation, the requirements for protection, conditions, or exclusions associated with the GAP waiver.

(3) That the borrower may cancel the GAP waiver within a Free Look Period as specified in the waiver, and will be entitled to a full refund of the purchase price, so long as no benefits have been provided. If cancelled after the Free Look Period and no benefits have been provided, the borrower shall receive a pro rata refund less a cancellation fee no greater than fifty dollars ($50) in accordance with the terms of the waiver.

(4) The procedure the borrower is required to follow in order to obtain GAP waiver benefits under the terms and conditions of the waiver, including a telephone number and address where the borrower may apply for waiver benefits.

(5) The procedures for cancelling the GAP waiver and requesting any refund due pursuant to Section 8-37-6.

(6) That neither the extension of credit, the terms of the credit, nor the terms of the related motor vehicle sale or lease, may be conditioned upon the purchase of the GAP waiver.

(7) That the cost of the GAP waiver is not regulated and that the borrower should determine whether the cost of the GAP waiver is reasonable in relation to the protection afforded by the GAP waiver.

§8-37-6.

(a) Guaranteed asset protection waiver agreements shall be cancellable. GAP waivers shall provide that if a borrower cancels a waiver within the Free Look Period, the creditor, administrator, or other authorized party shall provide the borrower a full refund of the purchase price of the GAP waiver, provided no benefits have been provided. In the event a borrower cancels the waiver after the Free Look Period and no benefits have been provided, the creditor, administrator, or other authorized party shall provide the borrower a pro rata refund of the purchase price, less any cancellation fee no greater than fifty dollars ($50) in accordance with the terms of the waiver.

(b) In the event of cancellation of the GAP waiver due to early termination of the finance agreement, the creditor shall provide, or cause the administrator or retail seller to provide, within 60 days of termination, any refund due to a borrower without requiring the borrower to request cancellation of the waiver.

(c) Any cancellation refund under subsection (a) or (b) may be applied by the creditor as a reduction of the amount owed under the finance agreement unless the borrower can show that the finance agreement has been paid in full.

§8-37-7.

Subsection (c) of Section 8-37-3 and Sections 8-37-5 and 8-37-8 of this act are not applicable to a GAP waiver offered in connection with a lease or retail installment sale associated with a commercial transaction.

§8-37-8.

(a) The Superintendent of Banks may take action which is necessary or appropriate to enforce the provisions of this act and to protect GAP waiver holders in this state. After proper notice and opportunity for hearing, the superintendent may do both of the following:

(1) Order the creditor, administrator, or any other person not in compliance with this section act to cease and desist from further GAP waiver-related operations which are in violation of this act.

(2) Impose a penalty of not more than five hundred dollars ($500) per violation and no more than ten thousand dollars ($10,000) in the aggregate for all violations of similar nature. For purposes of this act, a violation shall be considered to be of a similar nature if the violation consists of the same or similar course of conduct, action, or practice, irrespective of the number of times the action, conduct, or practice which is determined to be a violation of the act occurred.

(b) If requested by a retail seller, the Superintendent of Banks may determine that the insurance policy required by subsection (d) of Section 8-37-3 is not required for a retail seller that does not assign any of its finance agreements to any entity other than an affiliate and if the affiliated assignee agrees that the insurance policy is waived and the finance agreements will not be further assigned. The superintendent may require the evidence and assurances that the superintendent determines is needed to make that determination.

§8-37-9.

The Legislature finds that guaranteed asset protection waivers are not insurance. All guaranteed asset protection waivers issued prior to and after the effective date of this act shall not be construed as insurance.

Section 2. Creditors and other persons are not required to comply with this act for any GAP waiver entered into prior to the effective date of this act.

Section 3. This act shall be effective on January 1, 2018.

Motor Vehicles

Business and Commerce

Consumers and Consumer Protection

Banks and Banking

Banking Department

Code Added