California dealers swiftly adapted to the change in the law, achieving a compliance rate of 98%. However, it is important to note that eradicating the targeted behavior completely may prove to be a challenge for any state.
In an effort to gain more understanding, Informed.IQ conducted a study on three other states that have had similar limits in place for a longer period of time.
The study revealed that approximately 1.3% of all deals made between March 2022 and March 2023 in these states violated their respective laws.
For instance, Texas prohibits guaranteed asset protection that costs consumers over 5% of the financed amount, while Colorado restricts dealers from pricing the coverage above $300 or 2% of the financed amount, whichever is higher. In Minnesota, the sale of protection on used vehicles valued at $5,000 or less is banned.
Informed.IQ analyzed over 1,000 loans with coverage from Colorado, over 1,000 from Minnesota, and over 8,000 from Texas during the March to March period.
The findings showed that Texas had an average noncompliance rate of 1.1%, compared to 1.9% in Minnesota and 2.5% in Colorado.
On a monthly basis, noncompliance in Texas ranged from as low as 0.6% in March 2022 to as high as 1.7% in January 2023.
Colorado achieved full compliance in May and June 2022, but noncompliance reached 4.6% in September. Minnesota experienced several months of full compliance, but in March 2023, there was a violation rate of 6.5%.
In an upcoming blog post by Informed.IQ, Oscherwitz and senior data analyst Husain Radiowala stated, “In contrast to the California waiver law, each of these waiver restrictions are long-standing requirements, so dealers should be familiar with them. The results show that the vast majority of dealers have implemented checks to comply with these GAP waiver obligations. However, we also saw a persistent, non-trivial number of waiver contracts that did not conform to state legal requirements.”
Oscherwitz and Radiowala emphasized that regulators could easily identify dealers engaging in similar practices through similar analysis.
“From our perspective, dealers and lenders face risks if they fail to implement automated checks to identify these loan defects,” they mentioned in the draft post.
“Because these violations can be easily quantified, regulators can quickly identify them during compliance reviews.”
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.