BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 125|
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THIRD READING
Bill No: AB 125
Author: Assembly Insurance Committee
Amended: 3/7/11 in Assembly
Vote: 27 - Urgency
SENATE INSURANCE COMMITTEE : Not Available
ASSEMBLY FLOOR : 72-0, 3/10/11 - See last page for vote
SUBJECT : Insurance: guaranteed asset protection
SOURCE : Author
DIGEST : This bill clarifies that a deductible required
by an automobile insurance policy may be covered by
guaranteed automobile protection (GAP) insurance and
related contracts.
ANALYSIS : Existing law (1) defines "guaranteed
automobile protections insurance" to be insurance that
covers a vehicle purchaser or lessee for the difference
between the actual cash value of the insured's vehicle at
the time of a total loss or unrecovered theft and the
amount owed on the vehicle, (2) includes within this
definition an allowance for up to $5,000 above the amount
necessary to cover the gap for purchase of another vehicle,
and (3) provides for "waiver" clauses in vehicle
conditional sales contracts or lease agreements allowing
the seller, lender, or lessor to waive the difference
between the actual cash value of a vehicle at the time of a
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total loss or unrecovered theft and the amount owed on the
vehicle.
This bill:
1. Changes the definition of "GAP" so that the deductible
amount provided by a standard property damage insurance
policy may also be covered by GAP insurance.
2. Provides that a "waiver" clause in a vehicle conditional
sales contract or lease agreement, which is similar to
GAP insurance, but does not constitute insurance, and
which can be sold by people who are not licensed
insurance agents, may include the deductible amount
provided by a standard property damage insurance policy.
3. Replaces the word "automobile" with the word "asset" in
the definition of these contracts so that other
vehicles, such as motorcycles, motorhomes, boats, and
off-road vehicles, are also eligible to be covered by
GAP protection.
4. Authorizes waiver clauses to also include a discount or
incentive, above the amount required to satisfy the
obligation on the loan, lease or sales contract, for the
vehicle owner to purchase a replacement vehicle using
the same seller, lender or lessor.
Comments
According to the Senate Insurance Committee analysis, this
bill was introduced by the Assembly Insurance Committee to
fix an error in last year's AB 2782 (Assembly Insurance
Committee), Chapter 400, Statutes of 2010, omnibus bill and
ensure that California law does not unreasonably frustrate
the legitimate expectations of California consumers with
respect to what "Gap" insurance extends to.
Background and Discussion : During the prior session, the
Assembly Insurance Committee undertook to recognize in
statute, and acknowledge the differences which exist
between true insurance products, and waiver provisions in
loans, leases and sales contracts which have long been
marketed as "GAP" products. In doing so, the committee's
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AB 2782 inadvertently eliminated coverage for the
deductible amounts commonly provided for in automobile
insurance policies. This oversight renders most subject
contracts in the California market non-compliant. It also
puts at risk consumers' reasonable expectations about the
scope of the protection they are purchasing since these
expectations cannot be met under the definitions enacted by
AB 2782.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
ARGUMENTS IN SUPPORT : The author's office indicates:
1. GAP insurance and related waiver products provide a
sound consumer protection service because it is common
with respect to vehicle purchases that loan or lease
amounts exceed the "actual cash value" of the vehicle in
the early years of a loan or lease. Until these
products came into the market, consumers often found
themselves owing a lender more than the correct
insurance settlement would provide. The result for
consumers was either out-of-pocket losses to make up the
difference, or damage to the consumer's credit rating
due to defaulting on the remainder of the loan or lease
balance.
2. The Consumer Credit Industry Association states "We
believe that a misinterpretation of California AB 2782,
which passed in 2010, has led to the unintended
prohibition against lenders ability to waive the loan or
lease amount including insurance deductibles. Prior to
passage of AB 2782, a GAP waiver product could and did
provide this deductible coverage. Consumers are harmed
by the inability of GAP waiver providers to continue to
provide this benefit. The failure of the availability
of this benefit would harm consumers by the inability of
GAP waiver to continue to provide this benefit."
3. The American Financial Services Association states "AB
125 will ensure that GAP continues to cover the
deductible amount in the state - thus ruling out any
potential interpretations that may be detrimental to
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consumers." California Financial Services Association,
indicates it strongly supports AB 125 related to GAP
insurance because it "would rectify a drafting error
from last year's AB 2782" which "inadvertently
eliminated coverage for the deductible amounts commonly
provided for in automobile insurance policies." The
Guaranteed Asset Protection Alliance (GAPA) states "A
year ago GAPA was pleased to see the passage of AB 2782
which made clear that GAP waiver is not an insurance
product. However, the law as passed resulted in the
unforeseen consequence of GAP providers being unable to
waive the amount attributable to a primary carrier's
deductible. This coverage is typically provided to
consumers as part of a GAP waiver and its removal would
harm California consumers. Even though these consumers
purchased a waiver, they would be forced to pay the
portion of the debt attributable to their deductible.
AB 125 will repair this unintended consequence and will
return a valuable protection to California Consumers".
ASSEMBLY FLOOR : 72-0, 3/10/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Campos, Carter, Chesbro,
Conway, Cook, Dickinson, Donnelly, Eng, Feuer, Fletcher,
Fong, Fuentes, Furutani, Galgiani, Garrick, Gatto,
Gordon, Gorell, Grove, Halderman, Hall, Harkey, Hayashi,
Hill, Huber, Hueso, Huffman, Jones, Knight, Lara, Logue,
Bonnie Lowenthal, Ma, Mansoor, Miller, Mitchell, Monning,
Morrell, Nestande, Nielsen, Norby, Olsen, Pan, Perea, V.
Manuel Pérez, Portantino, Silva, Skinner, Smyth, Solorio,
Swanson, Torres, Valadao, Wagner, Wieckowski, Williams,
Yamada, John A. Pérez
NO VOTE RECORDED: Charles Calderon, Cedillo, Davis,
Hagman, Roger Hernández, Jeffries, Mendoza, Vacancy
DLW:kc 4/13/11 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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