Guaranteed Auto Protection

Guaranteed Auto Protection Overview

One of the downsides of financing major purchases — such as an automobile — is that it is possible to wind up owing more on it than it’s worth. Also known as being “upside down,” this means that should your car be severely damaged or “totaled” (not worth repairing) or stolen, the insurance company pays you less than you owe on the vehicle – and you wind up having to continue making payments on something you no longer have.

Carrying Guaranteed Auto Protection, or GAP insurance, is a way to avoid this scenario.  Typically, it is optional, although some lenders may require it.

A GAP policy, which is typically purchased through the lending institution, will cover the difference between what you owe on the vehicle and what the auto insurer is willing to pay should it be stolen or damaged beyond repair. If you are required to carry GAP insurance, this should be explicitly specified in the contract and included in the finance charges and APR. If this is not the case, you are not obligated to carry guaranteed auto protection, although it is wise to do so. Generally, GAP insurance adds approximately $400 to $600 to the purchase price of a vehicle.

The Legal Issue

Since guaranteed auto protection is paid up front and covers the term of the loan, if you are able to pay off your car loan sooner, you are entitled to a refund of the unused part of your GAP insurance under state laws.  However, at least one major lending institution, Wells Fargo, has allegedly failed in its obligation to issue refunds in these circumstances.

According to a Wells Fargo class action lawsuit filed in March of 2018, Wells Fargo instead collected the entire amount of the loan including what was paid for GAP coverage, pocketing the difference.

Wells Fargo acknowledged that there were problems in one of its quarterly filings with the Security and Exchange Commission, stating that they had “identified certain issues related to the unused portion of guaranteed auto protection. In response to  plaintiffs’ allegations, a representative for Wells Fargo, speaking to the New York Times, attributed the problem to “… a lack of oversight and controls surrounding the administration of Guaranteed Asset Protection products.” She went on to say that the bank has been conducting internal reviews of the process and working with auto dealers to address the problem.

Current Lawsuits

The present class action lawsuit against Wells Fargo was still underway as of March 2019. Another class action lawsuit involving guaranteed auto protection, originally filed in California in July of 2017, was recently settled for $386 million. That case involved Wells Fargo forcing customers to buy GAP insurance even if such losses were covered by their own policies, a practice that went on for more than a decade — and allegedly, doing so without their knowledge or consent.