Guaranteed Asset Protection, also referred to as Guaranteed Automobile Protection or GAP, is a debt cancellation service that banks and other financial institutions provide to customers who finance automobile loans. Under this service, these institutions agree to cancel the remaining loan balance when the customer’s automobile is totaled (damaged beyond repair or stolen and never recovered) and the insurance payout does not cover the outstanding balance on the loan. In other words, these institutions agree to forgive any “gap” between the amount the insurance company pays out and the amount outstanding on the loan. Because the GAP fees are prepaid upfront for the entire term of the underlying loan, if the underlying loan is paid off or otherwise terminated early, or if the customer cancels the GAP before the end of the loan term, then the financer is contractually and legally required to refund the unused and unearned portion of the GAP fees on a pro-rata basis. You may have a claim if you purchased GAP on a financed automobile loan, terminated the loan early, and were not refunded fees for the unused portion of GAP. CONTACT FDAZAR IMMEDIATELY.
Recently, financers have aggressively incentivized automobile dealers across the country to put pressure on borrowers to purchase GAP. If a customer signs up for GAP, the customer is required prepay upfront the GAP fees for the entire term of the underlying loan in one lump sum payment.
If the customer cancels the GAP before the end of the loan term, or if the GAP is effectively cancelled because the underlying loan is terminated or the vehicle is repossessed prior to the end of the loan term, the financer is contractually and legally required to refund the unused and unearned portion of the GAP fees to the customer on a pro-rata basis. This refund requirement is codified in law in at least 11 states, including Alabama, Colorado, Indiana, Iowa, Maryland, Massachusetts, Nevada, Oregon, Texas, Vermont, and Wisconsin.
Despite these requirements, many financers have systematically failed to refund unearned GAP fees when there is an early termination of the underlying loan or repossession of the vehicle. Instead of refunding the unearned GAP fees or at least notifying consumers they are entitled to a refund, these financers sit back and keep the funds for themselves, knowing full well that consumers are usually unaware or forget they are entitled to refund of the unused portion of their prepaid GAP fees when they have paid off their loan early or had their vehicle repossessed.
As an indication of the rampant misconduct, regulators are reviewing auto-lending procedures regarding GAP, including those related to borrower refunds, at several banks and other financial institutions in the wake of problems at Wells Fargo. The Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency are examining guaranteed asset protection products and the refund processes associated with them at these firms.
Franklin D. Azar & Associates is well known in the class action community. For over 30 years, our attorneys have protected the rights of individuals who have been taken advantage of by big corporations, and during that time, have secured over $1.5 billion in compensation – including over $750 million from Walmart in a wage and hour dispute that spanned approximately 26 states. FDAzar has been and is involved class actions against other large corporations like Hewlett Packard, Edward D. Jones & Co., L.P., Flex Ltd., and 401k providers. Notably, FDAzar is litigating a nationwide class action lawsuit against Wells Fargo related to its alleged failure to provide its customers with refunds for GAP. Our class action department is staffed with experienced and knowledgeable attorneys who focus on litigating large, complex cases on behalf of consumers, employees and investors who have suffered losses.