The Consumer Financial Protection Bureau is likely to keep an eye on lenders’ sales of guaranteed asset protection (GAP) products after highlighting the issue as a key finding in its summer 2019 Supervisory Highlights report. The report underscored one or more instances of auto lenders selling GAP products to consumers who would not have benefited from the product given a low loan-to-value (LTV) ratio.
GAP coverage is designed to cover the difference, or gap, between the amount owed on an auto loan and the amount received from the auto insurer in the event the vehicle is stolen, damaged or totaled, the report read.
When a consumer has a high LTV, he owes more in auto loans than the car’s actual value. So, if the car gets totaled, the insurer would pay what the car is worth and the consumer would be left paying on a loan for a car he doesn’t have. GAP insurance is designed to cover that difference.
However, vehicles with low LTVs are typically worth more than the loan amount, eliminating the payment “gap” that might arise if they’re stolen, damaged or totaled. Essentially, lenders sold consumers a product they would be unable to use. The CFPB declared the sales were evidence of consumers’ lack of understanding of the product and lenders subsequently taking “unreasonable advantage of consumers’ lack of understanding.”
“In response to these examination findings, the lenders have undertaken remedial and corrective actions, including reimbursing consumers for the cost of the product and establishing an LTV minimum for GAP product sales,” the report noted.
This isn’t the first time the bureau called attention to add-on products. Unfair and deceptive practices regarding ancillary products was a top issue highlighted in the CFPB’s previous Supervisory Highlights report published in March, wherein auto lenders miscalculated rebates, which resulted in higher deficiency balances, and then failed to request refunds from service providers after repossession or a total loss.
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