While it is not novel to see administrator registration requirements for vehicle service contracts or other vehicle protection products, Oklahoma recently enacted SB 541 which now requires the registration of debt waiver program administrators. Unlike service warranties, which may be purchased regardless of whether the vehicle is bought for cash or financed and are largely administered by third-party administrators, debt waiver programs are linked to the financing of the vehicle. This new requirement may result in a creditor or its assignee, rather than a third party, acting as an administrator for debt waiver programs, needing to register with the Regulated Industry Services Division of the Oklahoma Department of Insurance.
Debt waiver programs include GAP waiver products, excess wear and use waiver products, and value protection agreements. Despite establishing an obligation for certain persons to register with the Department of Insurance, motor vehicle financial protection products, including those listed above, will remain exempt from other insurance regulation. The new requirement becomes effective on November 1, 2024.
Motor Vehicle Financial Protection Products
Oklahoma allows motor vehicle financial protection products to be offered, sold, or given to consumers. Recognized types of these products include debt waiver and vehicle protection agreements. SB 541 does not amend the definition of either product.
A "motor vehicle financial product" is an agreement that protects a consumer's financial interest in their current or future motor vehicle. Debt waiver and vehicle value protection agreements are expressly included in the statutory definition of this product.
Types of Debt Waivers
A debt waiver includes guaranteed asset protection waivers and excess wear and use waivers.
Guaranteed Asset Protection Waiver
A guaranteed asset protection waiver (GAP waiver) is an agreement where, as part of financing a motor vehicle, a creditor agrees to cancel or waive all or part of amounts due on a borrower's financial agreement in the event of a total physical damage loss or unrecovered theft of the vehicle. A GAP waiver may also provide the borrower with a credit towards the purchase of a replacement motor vehicle. A product will be regulated as a GAP waiver regardless of whether the consumer is charged a separate fee for the benefit.
Excess Wear and Use Waiver
An excess wear and use waiver is an agreement where a creditor agrees to cancel or waive all or part of the amounts that would become due under a lease agreement as a result of excessive wear and use of the vehicle. These waivers may also cancel or waive amounts due for excess mileage. Like a GAP waiver, a product may be considered an excess wear or use waiver regardless of whether the consumer is charged a separate fee for the benefit.
The Oklahoma Insurance Commissioner may approve additional products as "debt waivers."
Vehicle Value Protection Agreements
A vehicle value protection agreement is a contractual agreement that provides a benefit towards either the reduction of some or all of the contract holder's current finance agreement deficiency balance. It can also apply towards the purchase or lease of a replacement motor vehicle or motor vehicle services upon the occurrence of an adverse event to the motor vehicle, including, but not limited to, loss, theft, damage, obsolescence, diminished value, or depreciation. Examples include trade-in-credit agreements, diminished value agreements, depreciation benefit agreements, and other similarly named agreements.
Who is Required to Register?
Despite more generally regulating motor vehicle financial protection products, the new registration requirement applies only to persons who perform certain services in support of debt waiver programs and vehicle protection agreements. In addition to those traditionally regulated as administrators, some creditors will also need to register with the Insurance Department to perform certain functions related to debt waiver programs.
With respect to a debt waiver program, both an administrator and any creditor that operates as an administrator must register with the Insurance Department to perform or engage in administrative or operational functions of a debt waiver program. An administrator of a debt waiver program continues to be a person who performs administrative or operational functions pursuant to a debt waiver program. A creditor subject to this new registration requirement includes the original lender, lessor, retail seller, and any subsequent assignee of such a creditor or lease agreement.
In the context of a vehicle value protection agreement, an administrator and any provider that operates as an administrator will need to register with the Insurance Department to perform or engage in any administrative or operational functions of vehicle value protection agreements. An administrator of a vehicle value protection agreement is the person responsible for the administrative or operational function of the agreements, including the adjudication of claims or benefits requested by contract holders.
In the case of both debt waiver programs and vehicle value protection products, administrative and operational funds may include things such as adjudication of claims, payment of benefits, registration of coverage, handling of customer calls and complaints, ensuring form and program compliance with applicable laws, and facilitating reimbursement coverage of claims by a contractual liability insurance policy, among other things.
Additional Protection Agreement Change
Oklahoma currently requires that all providers of vehicle value protection agreements insure its agreements. SB 541 adds that the insurance policy must cover 100% of a provider's claim exposure and contain the following provision: "In the event the provider is unable to fulfill its obligations under vehicle value protection agreements issued in this state for any reason including insolvency, bankruptcy, or dissolution, the insurer will pay any losses and unearned fees to the person making a claim under such agreement."
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