California dealers pivoted to 98 percent compliance quickly after the law change. However, a state might be unable to eradicate the behavior it targets.
Informed.IQ studied three other states that have had such limits on the books longer.
It found about 1.3 percent of their combined deals from March 2022 through March 2023 violated state laws.
Texas bans guaranteed asset protection that would cost consumers more than 5 percent of the amount financed, and Colorado won’t let dealers price the coverage above $300 or 2 percent of the amount financed, whichever is greater. Minnesota bans the sale of the protection on used vehicles worth $5,000 or less.
Informed.IQ checked more than 1,000 loans with the coverage from Colorado, more than 1,000 from Minnesota and more than 8,000 written in Texas during the March to March period.
In Texas, an average of 1.1 percent of deals were out of compliance compared with 1.9 percent in Minnesota and 2.5 percent in Colorado.
Viewed monthly, noncompliance in Texas ranged from a low of 0.6 percent in March 2022 to a high of 1.7 percent in January 2023.
Colorado saw full compliance in May and June 2022 but reached 4.6 percent noncompliance in September. Minnesota had many months of full compliance, but the state also experienced 6.5 percent of such deals in March 2023 violating the law.
“In contrast to the California waiver law, each of these waiver restrictions are long-standing requirements so dealers should [be] familiar with them,” Oscherwitz and senior data analyst Husain Radiowala wrote in an upcoming Informed.IQ blog post the company shared with Automotive News. “The results show that the vast majority of dealers have implemented checks to comply with these GAP waiver obligations. However, we also saw a persistent, non-trivial number of waiver contracts that did not conform to state legal requirements.”
Oscherwitz and Radiowala pointed out regulators could easily catch dealers with a similar analysis.
“From our perspective, dealers and lenders run risks if they do not implement automated checks to catch these loan defects,” they wrote in the draft post.
“Because these violations are numerically driven, regulators can spot them quickly during compliance reviews.”
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