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MILS Case Studies: New GAP Insurance Rules & Consumer RightsBack

MILSLogo2New GAP Insurance Rules from 1 September 2015

from the 1 September 2015 the FCA have brought in new rules to allow customers to make a more informed decision when purchasing an important insurance product such as GAP.

The idea of the new rules is that customers need to be provided information to help them “shop around” and be more engaged when making decisions about purchasing the product. As from the 1 September 2015, any car dealership selling a GAP contract must provide the following prescribed information to a customer on a prescribed information form:

  • The total premium of the GAP contract, separate from any other prices.
  • The significant features and benefits and significant and unusual exclusions or limitations of the policy and cross reference to the relevant policy document provisions.
  • Whether or not the GAP contract is sold in connection with vehicle finance and that GAP contracts are sold by other distributors.
  • The duration of the policy.
  • Whether the GAP contract is optional or compulsory.
  • When the GAP contract can be concluded by the firm.
  • The date that the information is set out above is provided to the customer.

These new rules introduce a deferral period which is designed to encourage customers to “shop around”. Under these rules, a firm cannot conclude a GAP contract until at least 2 clear days has passed since they sent the prescribed information to the customer. However, if a long time passes before the customer seeks to conclude the contract having been given the information, the firm needs to consider whether it should provide the information again.

Please note that the firm may shorten the period that the customer has to wait to conclude the GAP contract to the date after providing the information. However, this can only be done if the customer initiates the conclusion of the contract and confirms that they have understood the 2 clear day rule and consents to the firm concluding the contract earlier than provided for in that rule.

In reality, because of this new deferred period, it is appreciated that there will either be a delay in the transfer of the vehicle or a customer could be at risk for a short period of time after leaving the dealership without the GAP cover in place. It also means that the customer may need to return several days later to the dealership to conclude the GAP contract which they may view as an inconvenience.

It appears that the FCA did consider the question of inconvenience and the risk of customers being left uninsured for a limited period of time, but it appears that the FCA concluded that competition was more important than convenience.

The Consumer Rights Act.

This is the first in our series of articles breaking down aspects of the Consumer Rights Act 2015. The Consumer Rights Act 2015 is now the law. From 01 October all consumer contracts will be governed by this Act.

Whilst the Act seeks to simplify and consolidate existing consumer rights, there are some sections that can be seen as creating new rights. Today’s topic is one of these.

Match a model seen or examined (Section 14)

Goods have always had to be accurately described, and match any ‘Sample’ provided. The section above goes one step further in clarifying a consumer’s entitlement where a consumer is shown an example of goods to be purchased

“…2. Every contract to which this section applies is to be treated as including a term that the goods will match the model except to the extent that any differences between the model and the goods are brought to the consumer’s attention before the consumer enters into the contract….”

Motor traders have regularly kept demonstrator models to assist with the sales process. From the 1st October 2015 it will be necessary to establish that any differences between the vehicles ordered and any demonstrator vehicle examined or driven as part of a test have been brought to the consumer’s attention.

In Conclusion

As current sales processes are likely focused on the need to accurately record the specification of any vehicle ordered, they will continue to provide some level of protection. However, if Motor traders cannot identify whether a demonstrator was used as part of the sale, and if so the specifications of it, there will be an increased risk that members may be liable to compensate a consumer for breach of contract.

It is advised that any sales processes are reviewed in order to ensure they remain suitable for the business needs.

Paul Carroll, Solicitor, Motor Industry Legal Services

Posted by Sue Robinson on 28/08/2015