Debt Cancellation vs GAP: How to Ensure Compliance in Texas

We have seen some confusion about whether a financial product is considered Debt Cancellation or GAP.
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Why should I care?

• Incorrect Contracts: If you are entering the wrong product in your DMS, it will print on the wrong spot on the Retail Installment Contract

• OCCC Approval: Debt Cancellation Agreements requiring insurance must be approved by the OCCC. Ensure your Debt Cancellation Agreement is on their approved list here.

• Maximum Cost: GAP cannot be more than 5% of the Amount Financed in Texas. The max Debt Cancellation Agreement varies by the length of the loan. OCCC guidelines in finance code here.
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In summary, a Debt Cancellation Agreement focuses on canceling or forgiving a borrower's debt under specific circumstances. GAP covers the financial gap between the insurance payout and the remaining loan balance in the event of a total loss of the vehicle. They serve different purposes and address different aspects of financial risk for borrowers.
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Debt Cancellation Agreement

• Purpose: A Debt Cancellation Agreement is a contractual arrangement between a borrower and a lender. It typically covers the borrower's obligation to repay a loan in the event of certain specified events, such the vehicle being stolen or totaled.‍

• Coverage: the Debt Cancellation Agreement may cancel or forgive some or all of the remaining debt if the borrower experiences a covered event‍

• Cost: Borrowers usually pay a fee for this coverage. This fee is typically included in the payment amount and incurs a finance charge. The max Debt Cancellation Agreement cost varies

GAP (Guaranteed Asset Protection):

• Purpose: GAP is designed to cover the "gap" between the insurance payout in the event of a total loss (due to theft or accident) and the remaining balance on the loan.

• Coverage: GAP insurance covers the difference between the actual cash value of the vehicle at the time of loss and the outstanding loan balance. Example: a customer has $12k left on a loan, but the vehicle is only worth $8k. The vehicle gets totaled. GAP covers the $4k gap.

• Cost: Borrowers can purchase GAP insurance from the lender or through an insurance provider. The cost is typically included in the loan terms. GAP cannot exceed 5% of the Amount Financed in Texas
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LeftLane supports both Debt Cancellation Agreements and GAP.