GAP is a valuable and popular loan protection product. It helps reduce loan portfolio risk, while protecting auto loan borrowers, and providing them peace of mind.
However, sloppy marketing and sales tactics can get you in some real trouble. And facing a hefty fine. Let’s make sure you’re presenting GAP appropriately and accurately!
To help you out, we assembled this list of “Do’s” and “Don’ts”. These 5 steps will help ensure you don’t follow in other’s costly path. Share a clear message to borrowers about the product, and help keep your institution out of legal and regulatory hot water.
Quick note: Frost Financial Services specializes in GAP offerings. We think it’s great and industry-leading. Of course, you may not feel the same. That’s fine. It’s our mission to ensure you have all the information to make decisions that best suit your institution.
Share these best practices with lending, marketing, and compliance colleagues at your institution.
Embrace these “Do’s” and “Don’ts” as a starting point when marketing auto protection products like GAP to borrowers. It’s a short, yet valuable, read.
Review all your marketing collateral and channels, including website, product brochures, branch posters, and staff sales scripts, to ensure compliance with these best practices.
Do: Include appropriate disclosures
When highlighting the significant benefits of GAP in your marketing materials, be sure to:
Clearly and prominently represent the:
- Costs
- Restrictions
- Limitations
- Conditions of this voluntary protection product
These disclosures should be easy to locate and read within the marketing collateral, and printed in a font size no smaller than the rest of the text. 86 the fine print!
Lender Action
Add required disclosures to all GAP marketing materials and ensure they are clear and prominently placed.
Don’t: Market GAP as “Insurance”
Guaranteed Asset Protection, or “GAP,” is a voluntary, non-insurance program that may be included as an addendum to the borrower’s loan agreement.
It’s actually a promise from your institution to help “waive debt” in the event the borrower’s primary insurance carrier deems the vehicle (your collateral) a total loss.
However, GAP is not insurance. Your borrower does pay a stated fee, however, does not receive a policy issued by an insurance company. Instead, a waiver is generated by your institution specifying the terms. This is given to your borrower at closing.
Your GAP administrator reimburses your institution for each claim in accordance with the terms and limitations of their contract.
Please ensure that you do not use the term “insurance” when referring to GAP products.
Lender action
Review your institution’s website and all marketing materials and remove any use of the word “insurance” in association with GAP.
Do: Conduct regular staff training
An ounce of prevention is worth a pound of cure. The folks at one major GAP administrator, Frost Financial, advised us that they have heard complaints from borrowers when GAP does not fully pay off the remaining loan balance.
These include comments such as: “Why didn’t my loan officer explain that to me?” or (even worse), “My loan officer said that GAP would pay off my loan!”
We can do better. You are better. Say goodbye to these complaints. Wave with me…bye!
Your role is to delight borrowers. You can meet or even exceed their expectations simply by making sure your staff know all the benefits and limitations of your GAP program.
Lender action
Conduct regular sales practices and product training for all staff involved in GAP marketing and sales.
Frost recommends conducting training at least twice a year for all staff, as well as initial education for any employees taking on a new role involving GAP sales.
(Frost Financial helps staff learn how to offer GAP effectively and accurately through a “GAP Certification” course on our VisualGAP website.)
Don’t: Use statements like “GAP will pay,” “GAP covers the full balance,” or, “GAP will make you whole”
GAP is designed to help “waive” an outstanding debt balance when the primary insurance carrier deems a borrower’s vehicle a total loss.
That being said…
There is no guarantee GAP will pay off the entire remaining loan balance after the primary insurance settlement. All GAP programs include limitations and exclusions that can result in the borrower being held responsible for all or part of the deficiency balance.
It’s good no one has ever used those statements. Oh, wait.
In 2018 the CFPB found that Santander Bank violated the Consumer Financial Protection Act of 2010 by not properly describing the benefits and limitations of its GAP product and was fined over $11.5 million dollars.
Enough said.
Lender action
Review your institution’s website and all marketing materials. Remove any language which states or implies GAP will always cover the full remaining loan balance.
Summary
GAP is a wonderful product that fills an important need in the marketplace. Follow the simple practices outlined above and you can stand tall when presenting GAP to your borrowers.
And see? Our disclaimer is normal sized!
These materials are designed to help lenders avoid common marketing and sales practices that could be considered deceptive. They serve as general guidance only, and do not represent a legal opinion or a guarantee against regulatory action. Frost Financial Services recommends you review these materials with your compliance experts and legal counsel.