New Legal Requirements for Selling GAP Waivers

Paul R. Norman | 02.26.19

Dealers who sell GAP (guaranteed asset protection) waivers in connection with credit sales or leases of motor vehicles to consumers should be aware of recent changes in the law affecting those sales. Here are some of the legal requirements, which are detailed in Wis. Stat. 218.0148:

1. The waiver must be in writing and be part of, or a separate addendum to, the retail installment sale contract or lease (“finance agreement”). 
2. The buyer or lessee cannot be required to purchase the waiver.
3. The buyer or lessee must give a specific, separately signed, affirmative statement of his or her desire to purchase the waiver after receiving a conspicuous written disclosure containing specific, detailed information about the waiver and the buyer’s or lessee’s rights under the law. This statement may be indicated within a GAP waiver that is an addendum to a finance agreement. 
4. The required conspicuous written disclosures are listed in Wis. Stat. 218.0148(3), and are more extensive than under previous guidance from DFI. 
5. The cost of the waiver must be separately stated in the finance agreement, and is not considered a finance charge or interest. 
6. When a GAP waiver is sold in connection with a retail installment sale, the waiver must be insured by a licensed insurance company. When using a third party vendor’s GAP waiver product ask the vendor to verify that its waiver is insured in accordance with the Wisconsin law. The insurance requirement does not apply to waivers sold in connection with consumer leases. It is important to be mindful that GAP waivers can be sold in association with leases only when the lessee would otherwise be liable for a GAP amount. Be sure your lease agreement conspicuously discloses this fact, using the term ​“gap amount” and that the obligation to pay a gap amount is not waived.
7. The buyer or lessee must be allowed to cancel the waiver without penalty. If the cancellation occurs within 30 days after the purchase, a full refund or credit of the waiver cost plus the amount of applicable finance charges must be given. If the cancellation occurs after 30 days, a partial refund or credit must be given with the refund amount being calculated by a method no less favorable to the buyer or lessee than the ​“rule of 78.” 

Dealers who use waiver products developed by third party vendors should verify that the vendor’s program complies with the recent changes in the Wisconsin law. When in doubt ask your legal counsel to review the program to ensure compliance.