Guaranteed Auto Protection (GAP) and Debt Cancellation Contracts (DCC) recently came to my attention through my involvement with the Ohio Attorney General’s CSPA Advisory Group. These products are sold as protection against coming up short on a consumer loan if something bad happens to the goods. GAP or a DCC is supposed to pay off some or all of a remaining loan balance on secured consumer goods in the event of a total loss or theft of the goods – most frequently motor vehicles – covering the gap between the insurance pay out and the balance due on an installment loan. My colleagues on the advisory group tell me that GAP is very commonly sold in conjunction with motor homes and other recreational vehicles – vehicles notorious for plummeting in value as soon as the buyer drives one off the dealer’s lot. RVs are not common purchases for low income consumers, but new or late model used cars are, and for many low income families, their car is their most valuable asset.
The interesting thing about GAP and DCCs, which I think is counter-intuitive, is that these products are not legally considered to be any kind of insurance, and therefore not regulated by the Ohio Department of Insurance. Like extended warranties, GAP and DCCs are potentially prime products for ripping off consumers. GAP had not really been addressed by Ohio law, except to be defined in the tax code, until some amendments to the Retail Installment Sales Act (RISA) made their way into the Midterm Budget.
RISA regulates most contracts in which buyers make payments over time on consumer goods. This statute will now include a definition of debt cancellation or debt suspension products, require disclosures about the purchase price and terms as part of the installment contract, and prohibit a seller from conditioning the extension of credit on the purchase of GAP or other debt suspension or debt cancellation products. If you want to check out the language, here is a link to the budget bill.
Note, however, that RISA was not amended to give consumers a specific remedy against sellers and dealers who violate these new provisions. Consumers will have to look to our recently amended Consumer Sales Practices Act for relief.