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Is GAP Insurance an APR Fee?

Question: 
Is GAP insurance an APR fee? Sometimes we add GAP insurance premiums to our auto loans. It is a flat fee that the customer has the option of purchasing. If they purchase it, the loan amount is increased to include the fee and we pay the insurance company from the proceeds.
Answer: 

If the bank requires the insurance, debt cancellation or GAP, and requires the consumer to pay for it, the fee is a finance charge. However, when the purchase is optional to the consumer, the fee may be excluded from the finance charge - providing the following disclosures are given to the consumer:

  • The fact that the insurance, debt cancellation or GAP is optional.
  • The amount of the fee or premium. For closed-end loans, the fee must be disclosed in full. In addition, the bank must disclose any limitations on the term or coverage of the service if it does not run for the full term of the loan.

    The bank must also obtain the consumer's signature or initials as an indication that the consumer wants to purchase the service.

  • First published on 11/05/2012

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