2016 -- H 7712 SUBSTITUTE A

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LC004926/SUB A

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2016

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A N   A C T

RELATING TO FINANCIAL INSTITUTIONS - GUARANTEED ASSET PROTECTION

     

     Introduced By: Representative Brian P. Kennedy

     Date Introduced: February 24, 2016

     Referred To: House Corporations

     It is enacted by the General Assembly as follows:

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     SECTION 1. Title 19 of the General Laws entitled "FINANCIAL INSTITUTIONS" is

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hereby amended by adding thereto the following chapter:

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CHAPTER 32

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GUARANTEED ASSET PROTECTION WAIVERS

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     19-32-1. Legislative intent and purpose. -- (a) The general assembly finds that

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guaranteed asset protection waivers are not insurance. All guaranteed asset protection waivers

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issued prior to and after the date of enactment of this chapter shall not be construed as insurance.

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     (b) The purpose of this chapter is to provide a framework within which guaranteed asset

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protection waivers are defined and may be offered within this state.

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     (c) This chapter does not apply to:

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     (1) An insurance policy offered by an insurer under title 27 including, but not limited to,

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vendor single interest coverage; or

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     (2) A debt cancellation or debt suspension contract being offered in compliance with

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§§19-3-1 and 19-5-25 or 12 CFR Part 37 or 12 CFR Part 721 or other federal law.

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     (d) Guaranteed asset protection waivers governed under this section are not insurance and

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are exempt from the insurance laws of this state. Persons marketing, selling or offering to sell

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guaranteed asset protection waivers to borrowers that comply with this section are exempt from

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this state's insurance licensing requirements.

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     19-32-2. Definitions. -- The following are terms defined for purposes of this chapter and

 

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are not intended to provide actual terms required in guaranteed asset protection waivers:

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     (1) "Administrator" means a person, other than an insurer or creditor that performs

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administrative or operational functions pursuant to guaranteed asset protection waiver programs.

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     (2) "Borrower" means a debtor, retail buyer or lessee, under a finance agreement.

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     (3) "Creditor" means:

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     (i) The lender in a loan or credit transaction;

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     (ii) The lessor in a lease transaction;

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     (iii) Any dealer of motor vehicles that provides credit to retail buyers of such motor

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vehicles provided that such entities comply with the provisions of this section;

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     (iv) Any retail seller of motor vehicles as defined herein in commercial retail installment

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transactions; or

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     (v) The assignees of any of the foregoing to whom the credit obligation is payable.

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     (4) "Finance agreement" means a loan, lease or retail installment sales contract for the

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purchase or lease of a motor vehicle.

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     (5) "Free look period" means the period of time from the effective date of the GAP

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waiver until the date the borrower may cancel the contract without penalty, fees or costs to the

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borrower. This period of time must be not less than thirty (30) days.

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     (6) "Guaranteed asset protection waiver" or "GAP waiver" means a contractual

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agreement wherein a creditor agrees for a separate charge to cancel or waive all or part of

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amounts due on a borrower's finance agreement in the event of a total physical damage loss or

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unrecovered theft of the motor vehicle, which agreement must be part of, or a separate addendum

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to, the finance agreement.

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     (7) "Insurer" means an insurance company licensed, registered, or otherwise authorized to

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do business under title 27.

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     (8) "Motor vehicle" means self-propelled or towed vehicles designed for personal or

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commercial use, including, but not limited to, automobiles, trucks, motorcycles, recreational

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vehicles, all-terrain vehicles, snowmobiles, campers, boats, personal watercraft, and trailers for

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motorcycles, boats, campers and personal watercraft.

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     (9) "Person" includes an individual, company, association, organization, partnership,

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business trust, corporation, or other legal entity.

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     19-32-3. Requirements For Offering Guaranteed Asset Protection Waivers. -- (a)

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GAP waivers maybe offered, sold or provided to borrowers in this state in compliance with this

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chapter.

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     (b) GAP waivers may, at the option of the creditor, be sold for a single payment, or may

 

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be offered with a monthly or periodic payment option.

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     (c) Notwithstanding any provision of the general or public laws to the contrary, any cost

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to the borrower for a guaranteed asset protection waiver entered into in compliance with The

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Truth in Lending Act, 15 USC §1601 et seq., and its implementing regulations, as they may be

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amended from time to time, must be separately stated and is not to be considered a finance charge

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or interest.

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     (d) A retail seller must insure its GAP waiver obligations under a contractual liability or

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other insurance policy issued by an insurer. A creditor, other than a retail seller, may insure its

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GAP waiver obligations under a contractual liability policy or other such policy issued by an

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insurer. Any such insurance policy may be directly obtained by a creditor, retail seller, or may be

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procured by an administrator to cover a creditor's or retail seller's obligations; provided, that retail

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sellers that are lessors on motor vehicles are not required to insure obligations related to GAP

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waivers on such leased vehicles.

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     (e) The GAP waiver remains a part of the finance agreement upon the assignment, sale or

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transfer of such finance agreement by the creditor.

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     (f) Any creditor that offers a GAP waiver must report the sale of, and forward funds

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received on all such waivers to the designated party, if any, as prescribed in any applicable

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administrative services agreement, contractual liability policy, other insurance policy or other

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specified program documents.

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     (g) Funds received or held by a creditor or administrator and belonging to an insurer,

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creditor or administrator, pursuant to the terms of a written agreement must be held by such

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creditor or administrator in a fiduciary capacity.

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     19-32-4. Contractual Liability or Other Insurance Policies. -- (a) Contractual liability

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or other insurance policies insuring GAP waivers must state the obligation of the insurer to

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reimburse or pay to the creditor any sums the creditor is legally obligated to waive under the GAP

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waivers issued by the creditor and purchased or held by the borrower.

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     (b) Coverage under a contractual liability or other insurance policy insuring a GAP

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waiver must also cover any subsequent assignee upon the assignment, sale or transfer of the

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finance agreement.

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     (c) Coverage under a contractual liability or other insurance policy insuring a GAP

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waiver must remain in effect unless cancelled or terminated in compliance with title 27.

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     (d) The cancellation or termination of a contractual liability or other insurance policy

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must not reduce the insurer's responsibility for GAP waivers issued by the creditor prior to the

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date of cancellation or termination and for which premium has been received by the insurer.

 

LC004926/SUB A - Page 3 of 6

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     19-32-5. Disclosures. -- Guaranteed asset protection waivers must disclose, in writing

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and in clear, understandable language that is easy to read, the following:

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     (1) The name and address of the initial creditor and the borrower at the time of sale, and

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the identity of any administrator if different from the creditor.

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     (2) The purchase price and the terms of the GAP waiver, including without limitation, the

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requirements for protection, conditions, or exclusions associated with the GAP waiver.

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     (3) That the borrower may cancel the GAP waiver within a free look period as specified

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in the waiver, and will be entitled to a full refund of the purchase price, as long as no benefits

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have been provided; or in the event benefits have been provided, the borrower may receive a full

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or partial refund pursuant to the terms of the waiver.

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     (4) The procedure the borrower must follow, if any, to obtain GAP waiver benefits under

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the terms and conditions of the waiver, including a telephone number and address where the

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borrower may apply for waiver benefits.

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     (5) Whether or not the GAP waiver is cancellable after the free look period, and the

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conditions under which it may be cancelled or terminated including the procedures for requesting

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any refund due.

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     (6) That in order to receive any refund due in the event of a borrower's cancellation of the

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GAP waiver agreement or early termination of the finance agreement after the free look period of

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the GAP waiver, the borrower, in accordance with terms of the waiver, must provide a written

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request to cancel to the creditor, administrator or such other party, within ninety (90) days of the

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occurrence of the event terminating the finance agreement.

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     (7) The methodology for calculating any refund of the unearned purchase price of the

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GAP waiver due, in the event of cancellation of the GAP waiver or early termination of the

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finance agreement.

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     (8) That neither the extension of credit, the terms of the credit, nor the terms of the

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related motor vehicle sale or lease, may be conditioned upon the purchase of the GAP waiver.

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     19-32-6. Cancellation. -- (a) GAP waiver agreements may be cancellable or non-

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cancellable after the free look period. GAP waivers must provide that if a borrower cancels a

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waiver within the free look period, the borrower will be entitled to a full refund of the purchase

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price, as long as no benefits have been provided; or in the event benefits have been provided, the

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borrower may receive a full or partial refund pursuant to the terms of the waiver.

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     (b) In the event of a borrower's cancellation of the GAP waiver or early termination of the

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finance agreement after the agreement has been in effect beyond the free look period, the

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borrower may be entitled to a refund of any unearned portion of the purchase price of the waiver

 

LC004926/SUB A - Page 4 of 6

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unless the waiver provides otherwise. In order to receive a refund, the borrower, in accordance

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with any applicable terms of the waiver, must provide a written request to the creditor,

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administrator or other party, within ninety (90) days of the event terminating the finance

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agreement.

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     (c) If the cancellation of a GAP waiver occurs as a result of a default under the finance

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agreement or the repossession of the motor vehicle associated with the finance agreement, or any

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other termination of the finance agreement, any refund due may be paid directly to the creditor or

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administrator and applied as set forth in subsection (d) of this section.

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     (d) Any cancellation refund under subsections (a), (b) or (c) above, may be applied by the

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creditor as a reduction of the amount owed under the finance agreement, unless the borrower can

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show that the finance agreement has been paid in full.

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     19-32-7. Commercial Transactions Exempted. -- Sections 19-32-3(c), 19-32-5 and 19-

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32-8 are not applicable to a GAP waiver offered in connection with a lease or retail installment

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sale associated with transactions between business entities.

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     19-32-8. Severability. -- If any provision of this chapter, or the application of the

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provision to any person or circumstances, is held invalid, the remainder of the chapter, and the

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application of the provision to persons or circumstances other than those as to which it is held

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invalid, is not to be affected.

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     SECTION 2. This act shall take effect upon passage and shall apply to all guaranteed

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asset protection waivers which become effective on or after January 1, 2017.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO FINANCIAL INSTITUTIONS - GUARANTEED ASSET PROTECTION

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     This act would authorize motor vehicle dealers to issue guaranteed asset protection

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waivers to consumers while providing consumer protections for guaranteed asset protection

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waivers.

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     This act would take effect upon passage and would apply to all guaranteed asset

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protection waivers which become effective on or after January 1, 2017.

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