Auto Indirect

Yes.

Alabama allows a creditor to offer and finance a GAP waiver agreement between the creditor and the consumer.

Governing Law & Definitions. The Guaranteed Asset Protection Waivers Act, Ala. Code §§ 8-37-1 et seq. ("GAPWA"), governs the sale and financing of two-party GAP waivers in Alabama. The GAPWA authorizes a creditor to sell and finance two-party GAP waivers and imposes substantive requirements on the GAP waivers. Ala. Code § 8-37-3.

The GAPWA defines the term "GAP waiver" to mean a contractual agreement in which a creditor agrees, with or without a separate charge, to cancel or waive all or part of amounts due on a consumer's finance agreement in the event of a total physical damage loss or unrecovered theft of the motor vehicle, which agreement is part of, or a separate addendum to, the finance agreement. A GAP waiver may also provide, with or without a separate charge, a benefit that waives an amount or provides a borrower with a credit towards the purchase of a replacement motor vehicle. The term also includes an excess wear and use waiver contractual agreement in which a creditor agrees, with or without a separate charge, to cancel or waive all or part of amounts that may become due under a motor vehicle lease agreement of a borrower as a result of excessive wear and use of a leased motor vehicle, including excess mileage, which agreement must be part of, or a separate addendum to, the lease agreement. Ala. Code § 8-37-2(6).

The GAPWA defines the term "creditor" to include the lender in a credit transaction, any retail seller of motor vehicles in a retail installment transaction, or the assignees of the lender or retail seller to whom the credit obligation is payable. Ala. Code § 8-37-2(3).

The GAPWA provides that GAP waivers are not insurance. Ala. Code § 8-37-1(c).

Permissibility. The GAPWA allows a creditor to charge the borrower for a GAP waiver and exclude the charge from the finance charge or interest, as long as the GAP waiver complies with the Truth in Lending Act, 15 USC §§ 1601 et seq. ("TILA"). The GAPWA requires the creditor to separately itemize the charge for a GAP waiver in the finance agreement if the charge is financed. Ala. Code § 8-37-3(c).

The GAPWA provides that the GAP waiver remains part of the finance agreement upon assignment, sale, or transfer by the creditor. Ala. Code § 8-37-3(e).

The GAPWA prohibits the creditor from conditioning the extension of credit, any term of credit, or any term of the related motor vehicle sale on the purchase of a GAP waiver. Ala. Code § 8-37-3(f).

Disclosures. The GAPWA requires the creditor to disclose the following items in writing, in clear understandable language that is easy to read:

• 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;
• 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;
• 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, as long as no benefits have been provided; and that if the GAP waiver is cancelled after the Free Look Period and no benefits have been provided, the borrower will receive a pro rata refund less a cancellation fee no greater than $50 in accordance with the terms of the waiver;
• 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;
• the procedures for cancelling the GAP waiver and requesting any refund due pursuant to Ala. Code § 8-37-6;
• 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; and
• 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.

Ala. Code § 8-37-5.

Cancellation & Free-Look Period. The GAPWA provides that a free look period must be at least 30 days. The borrower may cancel the GAP waiver without penalty, fees, or costs to the borrower during the free look period. Ala. Code § 8-37-2(5). The GAPWA requires the creditor, administrator, or other authorized party to refund the full purchase price of the GAP waiver if the borrower cancels the GAP waiver during the free look period, provided no benefits have been provided. If the borrower cancels the GAP waiver after the free look period, the GAPWA requires the creditor, administrator, or other authorized party to give the borrower a pro rata refund of the purchase price less a cancellation fee of up to $50. Ala. Code § 8-37-6(a). The creditor may apply the refund as a reduction of the amount owed under the finance agreement unless the borrower can show that the agreement is paid in full. Ala. Code § 8-37-6(c).

Notice Requirements upon Termination. The GAPWA does not impose any notice requirements upon termination. Note that the GAPWA requires the creditor to disclose the procedures for cancelling the GAP waiver and requesting any refund due pursuant to Ala. Code § 8-37-6, but this disclosure may be made at origination. Ala. Code § 8-37-5(5).

Refund Requirements upon Termination. If the GAP waiver is cancelled due to early termination of the finance agreement, the GAPWA requires the creditor to provide, or cause the administrator or retail seller to provide, the refund due to the borrower within 60 days of termination without requiring the borrower to request cancellation of the GAP waiver. Ala. Code § 8-37-6(b). The creditor may apply the refund as a reduction of the amount owed under the finance agreement unless the borrower can show that the agreement is paid in full. Ala. Code § 8-37-6(c).

February 15, 2023   Show Redlined Changes