California is setting stricter rules on the sale of GAP insurance in the state. California Governor Gavin Newsom recently signed Assembly Bill 2311, which will limit the price of GAP insurance to four percent of the amount financed in an auto loan, and in certain cases, bans the sale of GAP insurance altogether.
The state is trying to curb the sale of finance add-ons, which dealerships tend to include at the final stages of a sale — sometimes without notifying buyers. In fact, there’s specific language in AB 2311 that legally requires sellers to tell buyers when GAP insurance has been added to their loan and to clearly outline the terms of the “Guaranteed Asset Protection” coverage. Buyers are free to reject the insurance if they so choose.
This has always been the case, but dealers will sometimes claim they have to add GAP coverage to all auto loans, which has let them get away with quietly rolling the cost of coverage into a deal. The new law will now make all of these finance riders into line items on invoices and make it harder for dealers to sell people coverage they may not need by banning GAP insurance in certain cases, as Auto News reports:
AB 2311 bans GAP sales on California car loans for less than 70 percent of a vehicle’s value or which finance more than GAP would cover, and it caps the price of GAP…
