Section 83.812 - Gap Waiver Agreement(a) Disclosure required by Texas Finance Code, § RSA 342.4021(d). (1) Disclosure. A lender must provide the borrower with the gap waiver agreement disclosure before presenting the borrower with the terms of the gap waiver agreement. The disclosure must not be in the loan agreement and must state that the borrower is not required to purchase the gap waiver agreement in order to obtain the loan. A lender may request that the borrower authenticate the gap waiver agreement disclosure acknowledging the borrower's timely receipt of the disclosure. A licensee may rely upon verifiable procedure to show that the gap waiver agreement disclosure was provided to a borrower.(2) Multiple applicants. In the case of multiple applicants, it is only necessary for the licensee to deliver the gap waiver agreement disclosure to one applicant.(b) Authorized gap waiver agreement provisions. The gap waiver agreement may include a provision that: (1) limits the calculation of the unpaid net balance;(2) limits the scope of the gap waiver agreement to loans that require the borrower to make a balloon payment between 24 and 48 months or to loans that are repayable in 48 months or more;(3) excludes loss or damage as a result of: (A) an act occurring prior to the date of the loan;(B) any dishonest, fraudulent, criminal, or illegal act resulting in a felony conviction of the borrower;(C) a mechanical or electrical breakdown or failure of the motor vehicle;(D) conversion, embezzlement, or secretion by any person in lawful possession of the motor vehicle;(F) the operation, use, or maintenance of the motor vehicle in any race, speed contest, or other contest;(4) requires the borrower to notify the licensee of any potential loss under the gap waiver agreement; or(5) requests the borrower to provide or complete the following documents: (A) a gap waiver agreement claim form;(B) proof of loss and settlement check from the borrower's basic comprehensive, collision, or uninsured/underinsured motorist policy or other parties' liability insurance policy for the settlement of the insured total loss of the motor vehicle;(C) verification of the borrower's primary insurance deductible; and(D) a copy of the police report, if any, filed in connection with the total loss of the motor vehicle.(c) Certificate of coverage. If a borrower purchases a gap waiver agreement, the licensee must provide the borrower, within a reasonable amount of time not to exceed 10 days from the date of the loan, a certificate or similar form that clearly sets forth: (1) the name of the borrower, and the name, address, and telephone number of the place where claims are administered;(2) the coverage amount and term of the gap waiver agreement;(3) the cost of the gap waiver agreement; and(4) the terms, including the limitations, exclusions, and restrictions.(d) Premium or rate for gap waiver agreement. A licensee may charge a reasonable gap waiver agreement fee that does not exceed the rates contained in the following figure. The amount of the fee is based upon the amount financed. The fee for the gap waiver agreement can be adjusted to the nearest whole dollar. The fee may be included in the amount financed, and a finance charge may be charged on the fee. Attached Graphic
(e) Refund of unearned gap waiver agreement fee. (1) Refunding method. Upon termination of a gap waiver agreement prior to the scheduled maturity date of a loan, the licensee must provide the borrower a refund or credit calculated using the pro rata method. The refund must be given upon prepayment of the loan or if the lender demands payment in full of the unpaid balance. The pro rata method of making refunds involves computing a factor to apply to the total premium to determine the unearned portion. The factor is determined by dividing the term remaining on the loan by the total loan term.(2) Rounding of unearned insurance premium. The refund credit for the gap waiver agreement can be rounded to the nearest whole dollar.(3) Refund credit less than $1 not required. A refund credit is not required if the amount of the refund credit is less than $1.(4) Flat cancellation within 60 days. If the borrower cancels the gap waiver agreement within 60 days from the date of the loan, the licensee will refund the entire gap waiver agreement fee. A borrower may not cancel the gap waiver agreement and then receive any benefits under the agreement.(f) Prompt payment of claims. A licensee must comply with the payment terms of the gap waiver agreement within 60 days of receiving a completed gap waiver agreement claim form. If the licensee has all of the information that a borrower would provide in the completion of a gap waiver agreement claim form, the licensee must comply with the payment terms of the gap waiver agreement within 60 days of receipt of all of the information.(g) Calculation of settlement amount. The calculation of the settlement amount will be calculated under one of the following methods: (1) Scheduled installment earnings method. If the loan uses the scheduled installment earnings method, the licensee will calculate the settlement amount by adding the remaining original scheduled installments together and then subtracting any refunds due as of the date of total loss or constructive total loss; or(2) True daily earnings method. If the loan uses the true daily earnings method, the licensee will calculate the settlement amount by determining the scheduled principal balance due as of the date of total loss or constructive total loss.(h) Prepayment of loan by gap waiver agreement. If the gap waiver agreement is triggered by the total loss or the constructive total loss of the motor vehicle, all refunds should be calculated as of the date of loss. (1) Insurance refunds. Examples of refunds include credit life premium, credit accident and health insurance premium, credit involuntary unemployment insurance premium, collateral protection insurance premium, and personal property insurance premium.(2) Interest refunds. If the loan uses the scheduled installment earnings method, the interest refund should be calculated as of the date of loss. If the loan uses the true daily earnings method, the licensee should not earn any interest after the date of loss.(i) Prohibited practices. A licensee cannot offer a gap waiver agreement if: (1) the loan is unsecured, secured by personal property other than a motor vehicle, or secured by real property;(2) the interest charge on the loan is calculated under Texas Finance Code, § RSA 342.201(a) and (e);(3) the loan is already protected by gap insurance;(4) the licensee has not provided the disclosure required by Texas Finance Code, § RSA 342.4021(d);(5) the purchase of the gap waiver agreement is required for the borrower to obtain the extension of credit;(6) the original term of the loan is less than 48 months, unless the loan contracts for a balloon payment; and(7) the agreement includes any exclusions or limitations other than those listed in this section.7 Tex. Admin. Code § 83.812
The provisions of this §83.812 adopted to be effective November 9, 2006, 31 TexReg 9001; amended to be effective November 4, 2010, 35 TexReg 9698