Guaranteed asset protection products sold in connection with vehicle credit sales, loans, and consumer leases

A lessor under a consumer lease may waive its right to hold a lessee liable for the gap amount, and may include a separate charge in the consumer lease for this waiver, if certain requirements are satisfied, including that the charge is conspicuously disclosed to the lessee. A consumer lease may not be conditioned on the lessee's agreement to obtain insurance or purchase a waiver covering the gap amount. A lessor's waiver of its right to recover the gap amount, if made without separate charge, is not property insurance and is excluded from the credit insurance provisions of the Wisconsin Consumer Act (WCA), which govern insurance to satisfy a debt in connection with a consumer credit transaction.

Current law also imposes certain requirements, including various disclosure requirements, on a retail installment sale of a motor vehicle for personal, family, or household use, and the retail installment contract must be in writing and signed by the buyer. A “retail installment contract" means a contract to sell a motor vehicle at retail in which the price of the motor vehicle is payable in one or more installments over time and in which the dealer has retained title to, or taken a security interest in, the vehicle. A sales finance company that acquires a retail installment contract from a dealer must provide written notice to the buyer of the acquisition and provide a statement of the contract's terms similar to that required of the dealer. A “sales finance company" includes a dealer that sells or leases motor vehicles under retail installment contracts or consumer leases and any person engaged in the business of purchasing or otherwise acquiring retail installment contracts or consumer leases from a dealer or lessor.

This bill provides that gap waivers may be offered and sold to borrowers in compliance with the requirements set forth in the bill. A gap waiver is defined as a contractual obligation under which a creditor agrees, for a separate charge, to cancel or waive all or part of amounts due on a borrower's finance agreement in the event of a total physical damage loss or unrecovered theft of a motor vehicle. A creditor is defined as a sales finance company (which, as discussed above, may include a motor vehicle dealer), a lessor under a consumer lease, or any other lender that extends credit to a buyer for the purchase of a motor vehicle from a dealer, but does not include a state or federally chartered financial institution. A finance agreement is defined as a retail installment contract, a consumer lease, or a loan agreement in which a creditor extends credit for the purchase of a motor vehicle. A borrower is defined as a buyer of a motor vehicle under a retail installment contract; a lessee under a consumer lease; or any other debtor to whom a creditor extends credit for the purchase of a motor vehicle.

Under the bill, a creditor may not require a borrower to purchase a gap waiver.

A creditor also may not offer or sell a gap waiver to a borrower unless certain conspicuous written disclosures are provided prior to or concurrent with the execution of the gap waiver agreement, including the following: 1) that the purchase of the gap waiver is optional and that the transaction may not be conditioned on the purchase of a gap waiver; 2) the cost and terms of the gap waiver; and 3) the procedure the borrower must follow to obtain gap waiver benefits. A borrower desiring a gap waiver must indicate in writing, after receiving these disclosures, the borrower's desire to purchase a gap waiver.

Under the bill, a gap waiver may be canceled by the borrower at any time without penalty or fee and terminates upon the occurrence of specified events, including payment in full by the borrower of the related credit transaction or any other event specified in the gap waiver. If the cancellation or termination of the gap waiver occurs within 30 days after purchasing the gap waiver, the borrower is generally entitled to a full refund or credit. The borrower is generally entitled to a partial refund or credit if the cancellation or termination occurs thereafter.

Under the bill, a gap waiver must be part of, or a separate addendum to, the finance agreement for the motor vehicle. Any cost to the borrower for a gap waiver entered into in compliance with federal credit laws must be separately stated and is not considered a finance charge or interest. A gap waiver may be assigned and the gap waiver remains a part of the finance agreement upon the assignment, sale, or transfer of the finance agreement by the creditor.

The bill specifies that gap waivers are not insurance and the insurance laws do not apply to them. The bill also specifies that a creditor offering or selling gap waivers must comply with any applicable requirement under the WCA, but further specifies that gap waivers are excluded from the credit insurance provisions of the WCA. The provisions of the bill do not apply to a borrower who purchases a motor vehicle under a retail installment contract primarily for business or commercial purposes and not for personal, family, or household use. However, the bill further specifies that a gap waiver offered or sold in conjunction with the purchase of a motor vehicle to be used primarily for business or commercial purposes, or in conjunction with the lease of a motor vehicle that is not a consumer lease, is not insurance.

The provisions of the bill replace provisions of current law relating to the offer and sale of gap waivers in connection with consumer leases.

The bill also specifies that gap waivers may be offered and sold in connection with the credit sale or lease of trailers, all-terrain vehicles, off-road motorcycles, snowmobiles, and boats or other watercraft.