Voluntary Protection Products: Dealers Take Note of Increased Focus on Sale of GAP and other F&I Products
Recently, government regulators and consumer advocates have heightened their focus on the sale of guaranteed asset protection (“GAP”) products, credit insurance, service contracts, extended warranties, theft deterrent products such as etch, and other F&I products designed to protect car buyers from large out of pocket losses associated with automobile leasing or ownership, which we will collectively refer to as “voluntary protection products.” Critics of the sale of voluntary protection products often focus on pricing and marketing of these products, alleging that they are subject to large price mark-ups, arbitrary or discriminatory pricing, and deceptive or misleading marketing. Several high-profile FTC and state enforcement actions have resulted in large fines against dealerships relating to the sale of voluntary protection products.
In October 2017, the National Consumer Law Center published a study highly critical of dealership pricing of voluntary protection products, titled “Auto Add-Ons Add Up: How Dealer Discretion Drives Excessive, Inconsistent, and Discriminatory Pricing.” In December 2018, the Bureau of Consumer Financial Protection announced an $11.8 million settlement with Santander Consumer USA Holdings Inc., in a case involving multiple allegations including claims that Santander failed to inform customers that GAP products it was selling would not in all cases cover the costs of replacing a car that was destroyed in an accident or otherwise considered a total loss according to the GAP agreement.
NADA Voluntary Protection Products Model Policy: An Excellent Template for Dealers.
In response to such concerns, the National Automotive Dealers Association (“NADA”) recently issued for its members a model dealership policy guide and template relating to the sale of voluntary protection products. NADA stresses that this guide and template are not a response to any extensive new government regulation, and these tools are simply suggestions for dealers to consider and consult in reviewing or crafting their own policies relating to the marketing, sale, and administration of voluntary protection products. NADA further notes that the law governing F&I product marketing and pricing varies from state to state, and therefore dealers should consult with competent attorneys and industry professionals on these issues.
The NADA voluntary protection products model policy is an excellent resource for dealers in developing best practices in the marketing and sale of voluntary protection products. The guide and template focus on ensuring that voluntary protection products are “offered, sold, and administered in an ethical, lawful, transparent, professional, and consumer-friendly manner.” The guidance addresses product knowledge, training, oversight, and post-sale administration of voluntary protection product programs. The guidance also stresses the importance of communicating the dealership’s commitment to truthful and transparent marketing and sales practices, which should be the hallmark of all dealership operations.
Like so many compliance issues facing automobile retailers, there is no single silver bullet that will absolve a dealer from liability. Constant vigilance over compliance duties and regular review of sales and marketing policies and practices are keys to minimizing a dealership’s risk of a consumer lawsuit or regulatory enforcement action.