On January 4, 2023, Colorado Attorney General Phil Weiser announced settlements with two state-chartered credit unions, Bellco Credit Union (“Bellco”) and Canvas Credit Union (“Canvas”), over Guaranteed Automobile Protection (commonly referred to as Guaranteed Asset Protection, or “GAP”) refunds. An investigation conducted by the Consumer Protection Section of the Colorado Department of Law found that the credit unions were not refunding GAP fees owed to consumers under state law. Under the terms set forth in the Assurances of Discontinuance, Bellco and Canvas have agreed to provide a combined $4 million in refunds to impacted consumers and each credit union will pay a $100,000 civil money penalty.
GAP protects consumers from the depreciation in their auto’s value in the event of loss by covering the difference between an auto’s insured value and the amount left on a borrower’s auto loan. GAP insurance generally refers to third party insurance purchased by a consumer in a separate transaction from the actual vehicle purchase, typically as added coverage to their auto insurance. A GAP waiver is an optional contractual obligation offered during the financing of an auto in which the seller agrees to waive any amounts still owed on an auto loan in the event of total loss. Here, the retail installment sales contracts purchased by the credit unions included GAP waivers.
The action was brought pursuant to 4 CCR 902-1:8 (“Rule 8”) of Colorado’s Uniform Consumer Credit Code Rules (“UCCR”) and the Colorado Consumer Protection Act, C.R.S. § 6-1-101 et seq. (“CCPA”). Rule 8 governs “Permissible Additional Charges – Guaranteed Automobile Protection” under the UCCR, and among other things, has a specific provision that requires a refund of the unearned fee or premium paid for GAP where a credit sale or consumer loan is prepaid prior to maturity or the vehicle is no longer in the consumer’s possession due to repossession or other disposition of the collateral. Where GAP is provided as a contractual term, the consumer must receive a pro rata refund. Colorado’s GAP requirements, like those in many other states, apply equally to any assignee or holder of a consumer credit sales contract or consumer loan.
In addition to payment of the consumer remediation and civil money penalties, the credit unions have agreed to change their business practices in order to provide the refunds going forward.
Regulatory scrutiny of GAP by state and federal regulators has intensified. These actions in Colorado are just the latest in the Attorney General’s enforcement of the state GAP law, resulting in $23.5 million in consumer refunds. (We discussed similar actions against three other Colorado credit unions here this past March, and have significant experience in dealing with the Colorado Attorney General in matters involving this issue.) The Massachusetts Attorney General also announced a $1.8 million settlement in March with GM Financial involving GAP refunds. In California, two new laws, effective as of January 1, 2023, implement new requirements on GAP waivers and void the security interest of any auto loan made to a servicemember that includes GAP.
Last month, a CFPB consent order with a bank included a settlement of the CFPB’s allegations that the bank engaged in a UDAAP violation by failing to refund GAP fees to eligible consumers as required under state law. Notably, the CFPB took the position in the conduct provisions of the consent order that, going forward, GAP refunds should be provided as a policy matter, even in the absence of any state law requirement. Finally, the Federal Trade Commission’s proposed Motor Vehicle Dealers Trade Regulation Rule includes provisions that would restrict GAP sales by dealers, specifically prohibiting GAP sales to consumers who would not financially benefit from GAP based on the loan-to-value ratio of the purchase or for other reasons. We expect this state and federal scrutiny of GAP to continue to escalate.