Never Buy “Gap Insurance” From A Car Dealer.

Let’s start with the proposition for what the business of car dealers is. “Selling cars”, you may say. Wrong! Car dealers are in the business of ripping you off while selling you cars. So, if you buy “gap insurance” from a car dealer, you are getting ripped off. That financial product you are buying from the dealer is not insurance.

Come on Leo, you say, I have bought cars in the past and paid a “premium” to buy the “insurance coverage” that protected me in the event of a total loss where the fair market value of the car is less than what I owed the bank. You thought you were buying insurance, but as a matter of Florida statutory law, you were not. Take a look at the applicable statute (the three asterisks, “***”, mean that I omitted some irrelevant subsections, 1 through 6; I added the red highlighting):

The 2018 Florida Statutes
Title XXXIII
REGULATION OF TRADE, COMMERCE, INVESTMENTS, AND SOLICITATIONS
Chapter 520
RETAIL INSTALLMENT SALES
520.02 Definitions.—In this act, unless the context or subject matter otherwise requires:
* * *
 (7) “Guaranteed asset protection product” means a loan, lease, or retail installment contract term, or modification or addendum to a loan, lease, or retail installment contract, under which a creditor agrees to waive a customer’s liability for payment of some or all of the amount by which the debt exceeds the value of the collateral. Such a product is not insurance for purposes of the Florida Insurance Code. This subsection also applies to all guaranteed asset protection products issued before October 1, 2008.

First, notice the play on words. We usually think of “gap” insurance as filling-in, what else, the gap between your loan balance and your car’s value. But note the acronym: GAP, as in “Guaranteed Asset Protection”. Clever, huh? Back to business.

So what does that statutory legal mumbo-jumbo mean? It means that Florida’s car dealer lobby convinced the Florida Legislature and the Governor to pass a law saying that a product that is obviously insurance, is not insurance. It looks like a duck, it walks like a duck, it quacks like a duck, but Florida’s lawmakers say it’s a turkey. And it is turkey for several reasons.

First, because it is not insurance, gap products are not regulated by the Florida Office of Insurance Regulation (FOIR), the state agency tasked with policing insurance companies. So, for example, if GAP were insurance, FOIR would have to approve the language of the product, just as it does for insurance policies sold in our state. Needless to say, GAP text is one-sided contractual language.

Second, dealer GAP “coverage” is usually sold as an addendum to the car financing document. Those papers will contain an arbitration clause. This means that if you get shafted by the GAP company, you will not be able to challenge it in court. You will have to go to an arbitrator . . . selected by the dealer!

Third, unlike an insurance company, if you win your GAP claim in arbitration, you will not get your attorney’s fees paid. This means that lawyers like me, who represent people on a purely contingent basis, that is, where we expect only to get paid by the other side, will not take your case.

So what can you do to get gap protection?  The answer is remarkably simple: buy real “gap insurance” from your insurance company. Never, ever, ever buy the bullsh*t GAP product dealers sell.