FILED SENATE
Mar 31, 2021
GENERAL ASSEMBLY OF NORTH CAROLINA
S.B. 425
SESSION 2021 PRINCIPAL CLERK
S D
SENATE BILL DRS45226-MQ-75A
Short Title: GAP and VVPA Agreement Changes. (Public)
Sponsors: Senators Woodard, Perry, and Johnson (Primary Sponsors).
Referred to:
1 A BILL TO BE ENTITLED
2 AN ACT TO MAKE CHANGES TO THE STATUTES GOVERNING GUARANTEED
3 ASSET PROTECTION WAIVERS AND TO CREATE AN ARTICLE GOVERNING
4 VEHICLE VALUE PROTECTION AGREEMENTS.
5 The General Assembly of North Carolina enacts:
6 SECTION 1. G.S. 66-440 reads as rewritten:
7 "§ 66-440. Definitions.
8 The following definitions apply in this Article:
9 (1) Administrator. – A person that performs administrative or operational
10 functions with respect to guaranteed asset protection waivers.
11 (2) Borrower. – A debtor, retail buyer, or lessee under a vehicle finance
12 agreement.
13 (3) Creditor. – Any of the following:
14 a. A lender in a loan or credit transaction.
15 b. A lessor in a lease transaction.
16 c. A vehicle dealer, including a motor vehicle dealer as that term is
17 defined in G.S. 20-286(11), that provides credit to or arranges
18 financing for a purchaser of a vehicle.
19 d. A seller in a commercial retail installment transaction.
20 e. An assignee of any of the foregoing to whom the credit obligation is
21 payable.
22 (4) Free-look period. – The period of time from the effective date of a guaranteed
23 asset protection waiver until the date the borrower may cancel the contract
24 without penalty, fees, or costs to the borrower.
25 (5) Guaranteed asset protection waiver. – Either of the following:
26 a. A contractual agreement in which a creditor agrees for agrees, with or
27 without a separate charge charge, to cancel or waive all or part of
28 amounts due on a borrower's vehicle finance agreement in the event of
29 a total physical damage loss or unrecovered theft of the vehicle, which
30 agreement shall be part of, or a separate addendum to, the vehicle
31 finance agreement. The agreement may also provide, with or without
32 a separate charge, a benefit that waives an amount or provides a
33 borrower with a credit towards the purchase of a replacement vehicle.
34 b. A contractual agreement in which a creditor agrees, with or without a
35 separate charge, to cancel or waive all or part of amounts that may
36 become due under a borrower's lease agreement as a result of excessive
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1 wear and use of a vehicle. The agreement must be part of, or a separate
2 addendum to, the lease agreement. Excess wear and use waivers may
3 also cancel or waive amounts due for excess mileage.
4 (6) Insurer. – An insurance company licensed, registered, or otherwise authorized
5 to do business under Chapter 58 of the General Statutes.
6 (7) Vehicle. – A motor vehicle, as that term is defined in G.S. 20-286(10), as well
7 as self-propelled or towed vehicles designed for personal or commercial use,
8 including, but not limited to, automobiles, trucks, motorcycles, recreational
9 vehicles, all-terrain vehicles, snowmobiles, campers, boats, personal
10 watercraft, and trailers for motorcycles, boats, campers, and personal
11 watercraft.
12 (8) Vehicle finance agreement. – A loan, lease, or retail installment sales contract
13 for the purchase or lease of a vehicle."
14 SECTION 2. G.S. 66-446 reads as rewritten:
15 "§ 66-446. Miscellaneous provisions.
16 (a) Article Controls. – The offering and sale of guaranteed asset protection waivers in
17 this State shall be subject to the provisions of this Article.
18 (b) Manner of Payment. – Guaranteed asset protection waivers may, at the option of the
19 creditor, be sold for a single payment or may be offered with a monthly or periodic payment
20 option.
21 (c) Compliance With Truth in Lending Act. – Notwithstanding any other provision of
22 law, any cost to the borrower for a guaranteed asset protection waiver subject to entered into in
23 compliance with the Truth in Lending Act (15 U.S.C. § 1601, et seq.) and its implementing
24 regulations, as they may be amended from time to time, shall be separately stated and is not to
25 be considered a finance charge or interest. The cost of a guaranteed asset protection waiver sold
26 in compliance with this Article shall be considered an authorized charge that may be financed
27 under Chapter 25A of the General Statutes and shall not be considered a part of the finance charge
28 or interest thereunder.
29 (d) Preservation Upon Transfer. – A guaranteed asset protection waiver shall remain a
30 part of the vehicle finance agreement upon its assignment, sale, or transfer by a creditor.
31 (e) Cannot Be Required. – Neither the extension of credit, the term of credit, nor the term
32 of a related vehicle sale or lease may be conditioned upon the purchase of a guaranteed asset
33 protection waiver.
34 (f) Forwarding of Proceeds. – A creditor that offers a guaranteed asset protection waiver
35 shall report the sale of and forward funds received on all such waivers to the designated party, if
36 any, as prescribed in any applicable administrative services agreement, contractual liability
37 policy, other insurance policy, or other specified program documents.
38 (g) Fiduciary Duty. – Funds received or held by a creditor or administrator and belonging
39 to an insurer, creditor, or administrator, pursuant to the terms of a written agreement, shall be
40 held by the creditor or administrator in a fiduciary capacity."
41 SECTION 3. Chapter 66 of the General Statutes is amended by adding a new Article
42 to read:
43 "Article 48.
44 "Vehicle Value Protection Agreements.
45 "§ 66-470. Scope.
46 The purpose of this Article is to provide a framework within which vehicle value protection
47 agreements are defined and may be offered within this State.
48 "§ 66-471. Definitions.
49 The following definitions apply in this Article:
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1 (1) Administrator. – The person responsible for the administrative or operational
2 functions of vehicle value protection agreements, including, but not limited
3 to, the adjudication of claims or benefit requests by contract holders.
4 (2) Commercial. – A transaction wherein the motor vehicle will primarily be used
5 for business purposes rather than personal.
6 (3) Contract holder. – A person who is the purchaser or holder of a vehicle value
7 protection agreement.
8 (4) Finance agreement. – A loan, retail installment sales contract, or lease for the
9 purchase, refinancing, or lease of a motor vehicle.
10 (5) Free-look period. – The period of time from the effective date of the vehicle
11 value protection agreement until the date the vehicle value protection
12 agreement may be canceled without penalty, fees, or costs.
13 (6) Insurer. – An insurance company licensed, registered, or otherwise authorized
14 to issue contractual liability insurance under the insurance laws of this State.
15 (7) Motor vehicle. – Self-propelled or towed vehicles designed for personal or
16 commercial use, including, but not limited to, automobiles, trucks,
17 motorcycles, recreational vehicles, all-terrain vehicles, snowmobiles,
18 campers, boats, personal watercraft, and related trailers.
19 (8) Person. – Includes an individual, company, association, organization,
20 partnership, business trust, corporation, and every form of legal entity.
21 (9) Provider. – A person that is obligated to provide a benefit under a vehicle
22 value protection agreement.
23 (10) Vehicle value protection agreement. – Includes a contractual agreement that
24 provides a benefit towards either the reduction of some or all of the contract
25 holder's current finance agreement deficiency balance, or towards the
26 purchase or lease of a replacement motor vehicle or purchase of motor vehicle
27 services, upon the occurrence of an adverse event to the motor vehicle,
28 including, but not limited to, loss, theft, damage, obsolescence, or diminished
29 value or depreciation. An agreement may include related agreements such as
30 trade-in credit agreements, diminished value agreements, depreciation benefit
31 agreements, or other similarly named agreements. The term does not include
32 debt waivers.
33 "§ 66-472. Requirements for offering vehicle value protection agreements.
34 (a) Vehicle value protection agreements in compliance with this Article may be offered,
35 sold, or given to consumers in this State.
36 (b) A provider may perform as an administrator or may utilize a third-party administrator
37 or other designee to be responsible for any and all of the administration of vehicle value
38 protection agreements in compliance with this Article.
39 (c) A contract holder that has been sold a vehicle value protection agreement shall be
40 given or provided access to a copy of the agreement.
41 (d) Notwithstanding any other provision of law to the contrary, any amount charged or
42 financed for a vehicle value protection agreement is an authorized charge that must be separately
43 stated and is not to be considered a finance charge or interest. The amount charged or financed
44 for the agreement may be included within the amount financed under G.S. 25A-9 and shall not
45 be considered a part of the finance charge or interest thereunder.
46 (e) In order to assure the faithful performance of the provider's obligations to its contract
47 holders, each provider shall comply with one of the following requirements:
48 (1) Reimbursement insurance policy. – The insurance of all of vehicle value
49 protection agreements under a reimbursement insurance policy issued by an
50 insurer licensed, registered, or otherwise authorized to do business in this State
51 that meets one of the following criteria:
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1 a. The insurer issuing the reimbursement policy must continuously
2 maintain surplus as to policyholders and paid-in capital of at least
3 fifteen million dollars ($15,000,000).
4 b. The insurer issuing the reimbursement insurance policy must
5 continuously maintain surplus as to policyholders and paid-in capital
6 of less than fifteen million dollars ($15,000,000) but at least ten
7 million dollars ($10,000,000), and the company maintains a ratio of
8 net written premiums, wherever written, to surplus as to policyholders
9 and paid-in capital of not greater than three-to-one (3:1).
10 (2) Maintenance of net worth. – A provider shall do all of the following:
11 a. Maintain, or together with its parent company maintain, a net worth or
12 stockholders' equity of at least one hundred million dollars
13 ($100,000,000).
14 b. Maintain a copy of the provider's or the provider's parent company's
15 most recent Form 10-K or Form 20-F filed with the Securities and
16 Exchange Commission (SEC) within the last calendar year, or if the
17 company does not file with the SEC, a copy of the company's audited
18 financial statements, which shows a net worth of the provider or its
19 parent company of at least one hundred million dollars
20 ($100,000,000). If the provider's parent company's Form 10-K, Form
21 20-F, or financial statements are utilized to meet the provider's
22 financial security requirement, then the parent company shall agree to
23 guarantee the obligations of the provider relating to vehicle value
24 protection agreements sold by the provider in this State.
25 Except for the requirements specified in this subsection, no other financial security
26 requirements shall be required for vehicle value protection agreement providers.
27 (f) Neither the extension of credit, nor the terms of credit, nor the terms of the related
28 motor vehicle sale or lease shall be conditioned upon the consumer's payment for or financing of
29 any charge for a vehicle value protection agreement. Vehicle value protection agreements may
30 be discounted or given at no charge in connection with the purchase of other noncredit-related
31 goods or services.
32 (g) A vehicle value protection agreement shall include a term stating that if a contract
33 holder cancels the agreement within the free-look period, the contract holder will be entitled to a
34 full refund of the purchase price paid by the contract holder, if any, so long as no benefits have
35 been provided. A free-look period must be at least 30 days.
36 (h) If the provider of the vehicle value protection agreement cancels the agreement, the
37 provider shall mail a written notice to the contract holder at the last known address of the contract
38 holder contained in the records of the provider at least five days prior to cancellation. Prior notice
39 to the contract holder is not required if the reason for cancellation is nonpayment of the provider
40 fee, a material misrepresentation by the contract holder to the provider or administrator, or a
41 substantial breach of duties by the contract holder relating to the covered product or its use. The
42 notice shall state the effective date of the cancellation and the reason for the cancellation. If a
43 vehicle value protection agreement is cancelled by the provider for a reason other than
44 nonpayment of the provider fee, the provider shall refund to the contract holder one hundred
45 percent (100%) of the unearned pro rata provider fee paid by the contract holder, if any. If
46 coverage under the vehicle value protection agreement continues after a claim, then any refund
47 may deduct claims paid. A reasonable administrative fee, not exceeding seventy-five dollars
48 ($75.00), may be charged by the provider.
49 "§ 66-473. Disclosures.
50 Vehicle value protection agreements must disclose in writing and in clear, understandable
51 language that is easy to read all of the following:
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1 (1) The name and address of the provider, contract holder, and administrator, if
2 any.
3 (2) The terms of the vehicle value protection agreement, including, without
4 limitation, the purchase price to be paid by the contract holder, if any, the
5 requirements for eligibility, conditions of coverage, and exclusions.
6 (3) A statement that the vehicle value protection agreement may be cancelled by
7 the contract holder within a free-look period as specified in the vehicle value
8 protection agreement, and that, if cancelled, the contract holder will be entitled
9 to a full refund of the purchase price paid by the contract holder, if any, so
10