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Signed statement a must with GAP purchase: new regulation

November 23, 2010
A customer's written permission must be obtained when selling bank-offered GAP products, according to a new regulation from the Office of the Comptroller of the Currency. The federal office is a bureau of the Treasury Department. The regulation, which took effect June 16, calls for dealers to obtain "a customer's written affirmative election to purchase a contract" when soliciting and selling a bank's GAP product as part of a deal. Oral disclosures about the terms, conditions and benefits also are required when a bank-offered GAP product is sold. Important, the regulation is aimed solely at bank-offered GAP products, not those offered through captive finance companies or third-party vendors. Dealers often choose third-party GAP products because of their profit potential and, in some cases, better terms for customers. With more customers with impaired credit, banks sometimes urge the sale of a GAP product to reduce their risks in a questionable deal. But the sale of a GAP product cannot be a condition for the consumer to obtain financing through a bank, or to offer better terms such as a longer note or lower rate. Most dealers and F&I managers understand that GAP products are optional, but the feds appear to have "flagged it as an area that could be abused," said Mark Dubis, a bank vice president. The new federal regulation gives plaintiffs attorneys another avenue to pursue cases in which they argue that retailers did not make proper disclosures.