This blog is a follow-up to previous blog: Tracking the Auto Industry’s Response to AB 2311 GAP Waiver Requirements
Part 1: Tracking the 4% Limit Compliance for GAP Waivers
This report updates Informed.IQ’s 2023 analysis of auto industry compliance with AB 2311, the California law that imposes limits on the sale of Guaranteed Asset Protection (GAP) waivers.
In a GAP waiver, the seller waives, for a fee, any amounts the car buyer still owes in the event of a total loss or unrecovered theft. GAP waivers appeal to consumers who worry about paying off a loan for a car they no longer have.
AB 2311 puts two major constraints on GAP waivers. First, AB 2311 mandates that GAP waiver costs not exceed 4% of the amount financed. Second, the law prohibits the sale of GAP waivers if the amount financed is less than 70% of manufacturer’s suggested retail price (MSRP).
When Informed.IQ first reported on AB 2311, we extolled industry’s near universal compliance with both key provisions. However, our new proprietary research, based on data from 36,320 auto loans across multiple lenders, shows decidedly mixed compliance results. While industry continues to show high compliance with the 70% amount financed cap, we found a steady increase in dealers selling GAP contracts that violate the 4% cap.
As reported earlier, from January 1, 2023 to August 2023 there was nearly universal compliance with the AB 2311 waiver price cap.
From the chart above, starting in the latter half of the year non-compliance started rising, leveling off at about 15-20% of the deals in the data in 2024.
Additionally, the distribution of the Percentage of Amount Financed, shows that while most deals remain within the 2%-4% range in 2023 and 2024, there are still some deals in violation, with 6% and higher financed amounts appearing across 2022-2024. This is concerning because it demonstrates that despite the law’s intent, some consumers are getting waivers at prices way beyond the cap.
With continued violations, there is a risk that stronger enforcement and penalties could be coming. This can be avoided with stronger lender controls, which can be implemented internally, or outsourced at a cost-effective rate to third party compliance providers.
As AB 2311 continues to reshape GAP waiver practices, lenders and dealers must maintain vigilance to protect consumers and mitigate ongoing compliance risk.
Part 2: Tracking GAP Waiver Compliance with the 70% MSRP Rule
As outlined in California’s AB 2311 law, GAP waivers are prohibited if the amount financed is less than 70% of the MSRP. The new data shows the auto industry’s strong compliance with this requirement.
The attached table demonstrates the continued success in keeping violations minimal, with no significant rise in non-compliance.
