California Gov. Gavin Newsom recently signed Assembly Bill 2311 and Senate Bill 1311, which set new policies related to guaranteed asset protection (GAP) coverage. Both bills take effect Jan. 1, 2023.

AB 2311 and SB 1311 remained a top priority for the California Credit Union League during this year’s legislative session. Correspondingly, the League was heavily involved in multiple rounds of negotiations with the California Attorney General’s Office, which sponsored both bills.

Credit unions throughout the state should note the following:

• For AB 2311, the League’s main “ask” was that if a credit union member cancels GAP, all refund obligations under the GAP policy would rest exclusively with the party that sold the waiver — not the holder of the retail installment contract.
  
  However, the attorney general’s office denied the League’s requests, indicating the refund process should be as easy as possible for the credit union member, and therefore the creditor is obligated to refund the unearned portion of the GAP fee. In spite of this, the League was able to secure an amendment that increased the time to process the refund from 25 days to 60 days, along with attaining other minor amendments.

• For SB 1311, the League was the leading trade association to first recognize that Section 5 of SB 1311 creates unintended consequences that will harm military servicemembers by preventing access to GAP-waiver and other credit-related ancillary products.
  
  Despite a heavy lobbying effort, the League was unable to remove Section 5 from the bill. Thus, this section will require any auto transaction that has a credit insurance product to now comply with the federal Military Lending Act.
  
  

Descriptions of AB 2311 and SB 1311 can be found here.

Moreover, California is not the only state that had a heavy focus on imposing new GAP requirements. The League has seen a significant trend in other states that have also increased efforts to address new GAP requirements.

To help credit unions prepare with a strong compliance plan, the League is preparing compliance resources, which include detailed summaries of both bills. The League’s detailed summary of AB 2311 will be available next week, and one on SB 1311 will be available in the upcoming weeks. The League will keep member-credit unions posted.

For questions, email Robert Wilson, senior vice president of state government affairs for the League, or Lisa Quaranta, vice president of regulatory advocacy for the League.

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