Regulatory Compliance and Ethics Flashcards

A dealer in a state that requires GAP waivers to be filed with the banking regulator sells an unfiled waiver form. What is the primary legal risk?

Answer: The waiver may be unenforceable and the dealer may face regulatory penalties

Using an unfiled or unapproved form can render the waiver contract void and expose the dealer to regulatory sanctions, fines, and potential restitution obligations.

Under the National Automotive Finance Association (NAF) guidelines, which loan characteristic most directly triggers a GAP suitability concern?

Answer: A loan with a loan-to-value ratio below 80%

When the loan-to-value ratio is already below 80%, the consumer likely has positive equity and may not face a deficiency balance in a total loss, making GAP of limited benefit.

A GAP provider wants to change the maximum loan-to-value ratio it will insure from 150% to 175%. Which regulatory step is typically required?

Answer: Filing a rate and form amendment with each applicable state regulator

Material changes to GAP program terms such as eligibility parameters require amended filings with each state insurance or banking regulator that has jurisdiction over the product.

Which of the following represents a 'disparate impact' compliance risk in GAP pricing?

Answer: Using dealer discretion to add markup to GAP prices, resulting in minority customers paying more on average

Dealer discretion in pricing optional products can create disparate impact on protected classes even without discriminatory intent, which is a well-documented ECOA enforcement concern.

A GAP professional learns that a customer's total loss claim was denied because the primary insurer's settlement was below market value due to an error. The ethical obligation is to:

Answer: Advise the customer of their right to dispute the primary insurer's valuation before the GAP claim is finalized

Ethical advocacy for the consumer includes informing them of their right to challenge an erroneous primary insurance settlement, which directly affects the GAP benefit calculation.

Which scenario is most likely to trigger a market conduct examination of a GAP administrator by a state regulator?

Answer: A pattern of consumer complaints alleging delayed or denied refunds upon cancellation

Patterns of consumer complaints about refund denials or delays are a primary trigger for market conduct examinations, as regulators use complaint data to identify systemic compliance failures.

A GAP contract excludes coverage if the vehicle is repossessed rather than declared a total loss. A consumer defaults, the vehicle is repossessed and subsequently totaled in an auction accident. Coverage is:

Answer: Excluded because the triggering event was repossession, not a covered total loss

The triggering event determines coverage; since the vehicle was first repossessed and GAP contracts typically exclude repossession scenarios, coverage would not apply even if the vehicle was later totaled.