The California New Car Dealers Association has issued a Dealer Alert on AB 125 (Chap. 24, Statutes of 2011), which clarifies that the inclusion of insurance deductibles in a debt cancellation agreement is permissible. The legislation was signed into law by Governor Brown on May 10, 2011. To read the CNCDA Alert, please see below:

Governor Jerry Brown Signs Urgency Bill to Fix GAP 

Effective Immediately, Dealers may Sell Debt Cancellation Agreements (GAP) Containing Insurance Deductible Waivers as Part of a Conditional Sale or Lease Agreement

Last year the Legislature enacted a bill to draw a distinction between GAP Insurance (which requires an insurance license to sell) and a debt cancellation agreement (which may be sold as part of a conditional sale contract or lease - without an insurance license). Unfortunately, language included in that bill was interpreted by the Department of Insurance (DOI) to prohibit the inclusion of an insurance deductible in amounts that can be waived under a debt cancellation agreement.

In response to the DOI’s interpretation, CNCDA joined forces with several industry groups to support urgency legislation to fix the problem. Yesterday,  Governor Brown signed AB 125 (Chap. 24, Statutes of 2011), which clarifies that the inclusion of insurance deductibles in a debt cancellation agreement is permissible. Because AB 125 passed the Legislature on a 2/3 vote and contains an urgency clause, it became effective immediately. Bottom-line:  dealers may once again offer debt cancellation agreements that promise to waive a consumer’s insurance deductible.

To learn more about AB 125, please feel free to contact a members of Arent Fox’s Automotive Practice Group.