2016 -- S 2424

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LC004531

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2016

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A N   A C T

RELATING TO FINANCIAL INSTITUTIONS - GUARANTEED ASSET PROTECTION

     Introduced By: Senator Roger Picard

     Date Introduced: February 11, 2016

     Referred To: Senate Judiciary

     It is enacted by the General Assembly as follows:

     SECTION 1. Title 19 of the General Laws entitled "FINANCIAL INSTITUTIONS" is

hereby amended by adding thereto the following chapter:

CHAPTER 32

GUARANTEED ASSET PROTECTION WAIVERS

     19-32-1. Legislative intent and purpose. -- (a) The general assembly finds that

guaranteed asset protection waivers are not insurance. All guaranteed asset protection waivers

issued prior to and after the date of enactment of this chapter shall not be construed as insurance.

     (b) The purpose of this chapter is to provide a framework within which guaranteed asset

protection waivers are defined and may be offered within this state.

     (c) This chapter does not apply to:

     (1) An insurance policy offered by an insurer under title 27; or

     (2) A debt cancellation or debt suspension contract being offered in compliance with 12

CFR Part 37 or 12 CFR Part 721 or other federal law.

     (d) Guaranteed asset protection waivers governed under this section are not insurance and

are exempt from the insurance laws of this state. Persons marketing, selling or offering to sell

guaranteed asset protection waivers to borrowers that comply with this section are exempt from

this state's insurance licensing requirements.

     19-32-2. Definitions. -- The following are terms defined for purposes of this chapter and

are not intended to provide actual terms required in guaranteed asset protection waivers:

     (1) "Administrator" means a person, other than an insurer or creditor that performs

administrative or operational functions pursuant to guaranteed asset protection waiver programs.

     (2) "Borrower" means a debtor, retail buyer or lessee, under a finance agreement.

     (3) "Creditor" means:

     (i) The lender in a loan or credit transaction;

     (ii) The lessor in a lease transaction;

     (iii) Any dealer of motor vehicles that provides credit to retail buyers of such motor

vehicles provided that such entities comply with the provisions of this section;

     (iv) Any retail seller of motor vehicles as defined herein in commercial retail installment

transactions; or

     (v) The assignees of any of the foregoing to whom the credit obligation is payable.

     (4) "Finance agreement" means a loan, lease or retail installment sales contract for the

purchase or lease of a motor vehicle.

     (5) "Free look period" means the period of time from the effective date of the GAP

waiver until the date the borrower may cancel the contract without penalty, fees or costs to the

borrower. This period of time must be not less than thirty (30) days.

     (6) "Guaranteed asset protection waiver" or "GAP waiver" means a contractual

agreement wherein 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 the motor vehicle, which agreement must be part of, or a separate addendum

to, the finance agreement.

     (7) "Insurer" means an insurance company licensed, registered, or otherwise authorized to

do business under title 27.

     (8) "Motor vehicle" means self-propelled or towed vehicles designed for personal or

commercial use, including, but not limited to, automobiles, trucks, motorcycles, recreational

vehicles, all-terrain vehicles, snowmobiles, campers, boats, personal watercraft, and trailers for

motorcycles, boats, campers and personal watercraft.

     (9) "Person" includes an individual, company, association, organization, partnership,

business trust, corporation, or other legal entity.

     19-32-3. Requirements For Offering Guaranteed Asset Protection Waivers. -- (a)

GAP waivers maybe offered, sold or provided to borrowers in this state in compliance with this

chapter.

     (b) GAP waivers may, at the option of the creditor, be sold for a single payment, or may

be offered with a monthly or periodic payment option.

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     (c) Notwithstanding any provision of the general or public laws to the contrary, any cost

to the borrower for a guaranteed asset protection waiver entered into in compliance with The

Truth in Lending Act, 15 USC §1601 et seq., and its implementing regulations, as they may be

amended from time to time, must be separately stated and is not to be considered a finance charge

or interest.

     (d) A retail seller must insure its GAP waiver obligations under a contractual liability or

other insurance policy issued by an insurer. A creditor, other than a retail seller, may insure its

GAP waiver obligations under a contractual liability policy or other such policy issued by an

insurer. Any such insurance policy may be directly obtained by a creditor, retail seller, or may be

procured by an administrator to cover a creditor's or retail seller's obligations; provided, that retail

sellers that are lessors on motor vehicles are not required to insure obligations related to GAP

waivers on such leased vehicles.

     (e) The GAP waiver remains a part of the finance agreement upon the assignment, sale or

transfer of such finance agreement by the creditor.

     (f) Neither the extension of credit, the term of credit, nor the term of the related motor

vehicle sale or lease may be conditioned upon the purchase of a GAP waiver.

     (g) Any creditor that offers a GAP waiver must report the sale of, and forward funds

received on all such waivers to the designated party, if any, as prescribed in any applicable

administrative services agreement, contractual liability policy, other insurance policy or other

specified program documents.

     (h) Funds received or held by a creditor or administrator and belonging to an insurer,

creditor or administrator, pursuant to the terms of a written agreement must be held by such

creditor or administrator in a fiduciary capacity.

     19-32-4. Contractual Liability or Other Insurance Policies. -- (a) Contractual liability

or other insurance policies insuring GAP waivers must state the obligation of the insurer to

reimburse or pay to the creditor any sums the creditor is legally obligated to waive under the GAP

waivers issued by the creditor and purchased or held by the borrower.

     (b) Coverage under a contractual liability or other insurance policy insuring a GAP

waiver must also cover any subsequent assignee upon the assignment, sale or transfer of the

finance agreement.

     (c) Coverage under a contractual liability or other insurance policy insuring a GAP

waiver must remain in effect unless cancelled or terminated in compliance with title 27.

     (d) The cancellation or termination of a contractual liability or other insurance policy

must not reduce the insurer's responsibility for GAP waivers issued by the creditor prior to the

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date of cancellation or termination and for which premium has been received by the insurer.

     19-32-5. Disclosures. -- Guaranteed asset protection waivers must disclose, in writing

and in clear, understandable language that is easy to read, the following:

     (1) 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.

     (2) 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.

     (3) 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; or in the event benefits have been provided, the borrower may receive a full

or partial refund pursuant to the terms of the waiver.

     (4) The procedure the borrower must follow, if any, 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.

     (5) Whether or not the GAP waiver is cancellable after the free look period, and the

conditions under which it may be cancelled or terminated including the procedures for requesting

any refund due.

     (6) That in order to receive any refund due in the event of a borrower's cancellation of the

GAP waiver agreement or early termination of the finance agreement after the free look period of

the GAP waiver, the borrower, in accordance with terms of the waiver, must provide a written

request to cancel to the creditor, administrator or such other party, within ninety (90) days of the

occurrence of the event terminating the finance agreement.

     (7) The methodology for calculating any refund of the unearned purchase price of the

GAP waiver due, in the event of cancellation of the GAP waiver or early termination of the

finance agreement.

     (8) 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.

     19-32-6. Cancellation. -- (a) GAP waiver agreements may be cancellable or non-

cancellable after the free look period. GAP waivers must provide that if a borrower cancels a

waiver within the free look period, the borrower will be entitled to a full refund of the purchase

price, as long as no benefits have been provided; or in the event benefits have been provided, the

borrower may receive a full or partial refund pursuant to the terms of the waiver.

     (b) In the event of a borrower's cancellation of the GAP waiver or early termination of the

finance agreement after the agreement has been in effect beyond the free look period, the

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borrower may be entitled to a refund of any unearned portion of the purchase price of the waiver

unless the waiver provides otherwise. In order to receive a refund, the borrower, in accordance

with any applicable terms of the waiver, must provide a written request to the creditor,

administrator or other party, within ninety (90) days of the event terminating the finance

agreement.

     (c) If the cancellation of a GAP waiver occurs as a result of a default under the finance

agreement or the repossession of the motor vehicle associated with the finance agreement, or any

other termination of the finance agreement, any refund due may be paid directly to the creditor or

administrator and applied as set forth in subsection (d) of this section.

     (d) Any cancellation refund under subsections (a), (b) or (c) above, may be applied by the

creditor as a reduction of the amount owed under the finance agreement, unless the borrower can

show that the finance agreement has been paid in full.

     19-32-7. Commercial Transactions Exempted. -- Sections 19-32-3(c), 19-32-5 and 19-

32-8 are not applicable to a GAP waiver offered in connection with a lease or retail installment

sale associated with a commercial transaction.

     19-32-8. Enforcement. -- The commissioner of insurance for the department of business

regulation may take action which is necessary and appropriate to enforce the provisions of this

chapter, and to protect GAP waiver holders in this state. After proper notice and opportunity for

hearing, the commissioner may:

     (1) Order the creditor, administrator or any other person not in compliance with this

chapter to cease and desist from further GAP waiver related operations which are in violation of

this chapter.

     (2) Impose a penalty of not more than five hundred dollars ($500) per violation, and not

more than ten thousand dollars ($10,000) in the aggregate for all violations of similar nature. For

the purposes of this section, violations must be of a similar nature if the violation consists of the

same or similar course of conduct, action or practice, regardless of the number of times the

action, conduct or practice determined to be a violation of the chapter occurred.

     19-32-9. Severability. -- If any provision of this chapter, or the application of the

provision to any person or circumstances, is held invalid, the remainder of the chapter, and the

application of the provision to persons or circumstances other than those as to which it is held

invalid, is not to be affected.

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      SECTION 2. This act shall take effect upon passage and shall apply to all guaranteed

asset protection waivers which become effective on or after January 1, 2017.

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LC004531

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO FINANCIAL INSTITUTIONS - GUARANTEED ASSET PROTECTION

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     This act would authorize motor vehicle dealers to issue guaranteed asset protection

waivers to consumers while providing consumer protections for guaranteed asset protection

waivers.

     This act would take effect upon passage and apply to all guaranteed asset protection

waivers which become effective on or after January 1, 2017.

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