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85th Legislature Brings Reform, New Products to F&I

By moconnell on 6/28/2017
By Jay Howard Licensing & Compliance Administrator

Lawmakers at the Texas Capitol might still be hard at work preparing to address legislation in the upcoming special session, but several bills impacting Texas auto dealers have already received the governor’s signature. Beyond the political infighting and controversies that often characterized the 85th legislature, five significant bills were signed into law with little fanfare. All bills will take effect September 1, 2017.

SB 1052 – GAP Waiver Statute Reform
The Guaranteed Asset Protection Alliance and Senator Bryan Hughes, shepherded SB 1052 through the Texas Senate on behalf of GAP providers in Texas. The bill reforms the current law surrounding debt cancellation agreements, also known as GAP Waiver, so that the product can be sold in connection with financing of motorsports and powersports vehicles as well as lease transactions.

Additionally, the bill adds language to the existing statute that will allow lenders to satisfy their GAP Waiver refund obligations by providing written instruction to the dealer or administrator. Under the new language, the lender must still ensure that the refund is made within 60 days of termination of the agreement. 

Several large lenders, at the direction of the OCCC, have recently adopted policies that require them to issue refunds directly to customers. The new law could potentially eliminate the need for such policies, although any changes to existing policies will be at each individual lender’s discretion.

SB 1199 – Depreciation Benefit
Senators Donna Campbell and Josè Menèndez introduced this legislation amending the service contract statute (Tx. Occ. Code, Ch. 1304) to allow the sale of a Depreciation Benefit Optional Member Program. Upon the total constructive loss of a covered vehicle, the benefit program would provide a customer a credit toward the purchase of a new vehicle at a participating dealer. The credit would be equal to or less than the difference between the purchase price and the actual cash value of the vehicle at the time of loss.

The product must be cancellable, refundable, and is subject to a mandatory 30-day free look period. The charge for the agreement must be reasonable in relation to the benefit.

HB 2339 – Trade-In Credit Agreements
Another newly-authorized product was created by HB 2339, which allows the sale of trade-in credit agreements in connection with retail installment contracts under Chapter 348 of the Finance Code. These agreements would provide a credit at trade-in for the diminished value of a damaged, non-total-loss vehicle.

The product must be cancellable, refundable, and is subject to a mandatory 31-day free look period. The retail cost for the agreement is capped at 5% of the cash price of the vehicle.

HB 2275 – Vehicle Service Contract Statute Reforms
This bill, endorsed by the Service Contract Industry Council, changes the VSC statute to allow the sale of service contracts that protect against the loss, theft, or inoperability of vehicle key fobs.

It also clarifies ambiguous language that previously seemed to require VSC providers to deduct claim amounts from refund amounts. Service Group and Preferred Administrators have always maintained a policy of issuing cancellation refunds without deducting claim payment amounts.

SB 2065 – Vehicle Protection Product Deregulation
As part of a larger effort to eliminate unnecessary or duplicative regulation, Section 2306 of the Occupations Code, which regulates vehicle protection products and warranties, was repealed. The bill removes certain licensing and filing requirements for VPP providers and administrators.

In addition to these bills, several key pieces of legislation affecting Texas auto dealers did not make it to Governor Abbott’s desk. A handful of bills seeking to change the current dealer franchise laws were introduced. Tesla Motors, Cummins, and Berkshire Hathaway each sponsored such legislation, only to see their bills left on the cutting room floor.