Auto Indirect

Yes.

Alabama allows the creditor to sell and finance GAP insurance issued by a third party.

Governing Law & Definitions. The Alabama Consumer Credit Act, Ala. Code §§ 5-19-1 et seq. ("Mini-Code"), does not address whether the creditor may sell and finance GAP insurance issued by a third party. The Mini-Code authorizes a creditor to contract for a finance charge and specified fees. The Attorney General's office has taken the position that a creditor may not charge any other fee unless the fee is authorized by another Alabama statute.

The Alabama General Insurance Regulations at Ala. Admin. Code r. 155-2-2-.12 and Ala. Admin. Code r. 155-2-2-.13 ("Mini-Code Insurance Regulations") apply to the sale of GAP insurance.

The Insurance Premium Finance Companies Chapter, Ala. Code §§ 27-40-1 et seq. ("IPFCC"), does not apply to charges for insurance in connection with the installment sale of a motor vehicle. Ala. Code § 27-40-2(3).

Permissibility. The Mini-Code allows a creditor to offer and finance insurance in connection with any consumer credit transaction upon such terms as are authorized by regulation of the Superintendent of Banks ("Superintendent or "Administrator""). Ala. Code § 5-19-20(i). The Mini-Code limits property insurance but does not address GAP insurance. Ala. Code § 5-19-20.

The Superintendent has not issued a regulation to limit GAP insurance. The Mini-Code Insurance Regulations require insurance offered and written pursuant to Ala. Code § 5-19-20 to be with a company licensed to do business in Alabama. Ala. Admin. Code r. 155-2-2-.12(1).

The Mini-Code Insurance Regulations require a creditor to submit a request to the Supervisor of the Bureau of Loans ("Supervisor") in order to obtain written approval to write, offer, and finance other insurance pursuant to Ala. Code § 5-19-20. The creditor must submit the following with the request:

• a description of the insurance product the creditor seeks permission to offer and finance, with copies of certificates, policies, or benefit forms that will be furnished to customers;
• a statement of actions the creditor will take to assure compliance with applicable laws and regulations; and
• any other information requested by the Supervisor or Administrator.

Ala. Admin. Code r. 155-2-2-.12(12)(b).

Disclosures. The Mini-Code Insurance Regulations require a creditor offering insurance to give the customer written disclosure that:

• during the process of applying for a consumer credit contract, the consumer may be solicited for one or more insurance products; and
• the purchase of any insurance product may not be a condition for a consumer credit contract approval or for obtaining a consumer credit contract except as permitted by Ala. Code § 5-19-20.

Ala. Admin. Code r. 155-2-2-.12(13)(a).

The Mini-Code Insurance Regulations require a creditor offering insurance to give the principal debtor either the insurance contract purchased or an easy to read and understand description for each insurance product requested for purchase at the consumer credit contract closing. Ala. Admin. Code r. 155-2-2-.12(13)(c).

The Mini-Code Insurance Regulations require a creditor offering insurance to give each prospective insured a disclosure statement signed by the principal debtor and the licensee's agent. The disclosure statement must indicate that:

• the principal debtor and any insured cosigner desires to purchase the insurance coverage as described in the disclosure statement;
• the principal debtor and any covered cosigner fully understands that buying the insurance is not a condition of the loan (this disclosure must appear in boldface type);
• the insured(s) may cancel the policy within 30 days after the insurance is issued and receive a full refund of the insurance premium paid by returning the insurance contract to the insurer, or upon written instructions from the insured to the insurer; and
• the insured(s) may cancel the policy more than 30 days after the insurance is issued by giving notice of cancellation to the insurer and will receive a refund of a portion of the insurance premium pursuant to the regulations, rules, and orders of the Department of Insurance.

Ala. Admin. Code r. 155-2-2-.12(13)(b).

Notice Requirements upon Termination. Neither the Mini-Code nor the Mini-Code Insurance Regulations impose any notice requirements upon termination.

Refund Requirements upon Termination. The Mini-Code Insurance Regulations require the holder of a RISC to make a refund of the GAP insurance premiums upon prepayment in full, renewal, or refinancing. The holder does not have to make a refund if the amount due on any single insurance coverage is less than $1. Ala. Admin. Code r. 155-2-2-.13.

December 15, 2021   Show Redlined Changes