On April 3, Kentucky enacted SB 158, a comprehensive statute governing products that offer benefits in connection with personal property, with a particular focus on add‑on products sold with vehicle finance and lease transactions. The law creates a formal regulatory framework for “vehicle financial protection products,” provides that they are not “insurance”, and ties compliance to the state’s retail installment and consumer loan regimes. Most vehicle financial protection provisions apply to products that become effective on or after January 1, 2027.

Scope

SB 158 has three core objectives. First, it defines and regulates a set of vehicle-related financial products — primarily auto finance guaranteed asset protection (GAP) waivers, auto lease excess wear-and-use waivers, and vehicle value protection agreements — and imposes disclosure, cancellation, and financial-backstop requirements on issuers of those products. Second, it draws a bright line between those products and traditional insurance by expressly excluding them from the Kentucky Insurance Code and separately regulating “credit personal property insurance,” from which these products are carved out. Third, it amends Kentucky’s motor vehicle retail installment and consumer loan statutes to ensure that dealers, sales finance companies, and consumer lenders must follow the new framework when they offer these products.

What Is a “Vehicle Financial Protection Product”?

The Act defines “vehicle financial protection product” to include two principal categories.

The first category is “debt waivers.” This covers GAP waivers — contracts under which a creditor agrees, with or without a separate charge, to cancel or waive some or all amounts due under a vehicle finance agreement if the vehicle is a total loss or unrecovered theft, often with a credit toward a replacement vehicle — and excess wear-and-use waivers, typically addenda to auto leases under which the lessor agrees to waive end-of-term charges to a lessee for excessive wear, use, or mileage.

The second category is “vehicle value protection agreements” (VVPAs). These are contracts that, upon the occurrence of an adverse event affecting a vehicle such as loss, theft, damage, obsolescence, diminished value, or depreciation, provide a benefit toward reducing the customer’s deficiency balance or toward the purchase or lease of a replacement vehicle. The definition expressly includes trade-in credit and depreciation-benefit products and expressly excludes debt waivers, service contracts, and traditional insurance.

Notably, the statute provides that vehicle financial protection products issued before, on, or after the effective date “shall not be considered insurance.” KRS 304.1‑120 is amended to add these products to the list of arrangements that fall outside the Insurance Code, and a separate set of provisions in KRS Chapter 304 governs credit personal property insurance, from which vehicle financial protection products are expressly excluded.

Pricing, Disclosures, and Anti‑Tying Rules

SB 158 addresses how these products may be priced and how they interact with the underlying credit transaction. Any amount charged or financed for a vehicle financial protection product must be separately stated in the finance documents and is deemed an authorized charge that is not a “finance charge” or “interest” under Kentucky law. At the same time, creditors may not condition the extension of credit, the terms of a loan, or the terms of a related vehicle sale or lease on a consumer’s payment for, or financing of, a vehicle financial protection product. Creditors may discount or give these products at no charge in connection with other non‑credit goods or services, but access to credit itself cannot depend on purchasing them.

In non‑commercial transactions, both debt waivers and VVPAs must be documented in clear, written agreements that disclose at least: that credit and deal terms are not conditioned on purchase; the parties’ identities; the price; eligibility, conditions, and exclusions; procedures for obtaining benefits; and a “free look” period of at least 30 days during which the consumer can cancel and receive a full refund if no benefit has been provided. If the product can be cancelled after the free look period, the agreement must explain how cancellation and refunds work. Consumers may generally be entitled to a refund of the unearned portion of the purchase price, less an administrative fee capped at $75, if no benefit has been or will be provided. VVPAs must also state explicitly that they are not insurance.

Debt Waivers and VVPAs

For debt waivers (GAP and excess wear/use), the Act requires structural protections. As a default rule, a retail vehicle seller must insure its debt waivers under a contractual liability or similar policy issued by an authorized insurer, obligating that insurer to reimburse or pay the sums the creditor is required to waive. The policy must remain in effect unless properly canceled and must continue to cover waivers issued and premium‑paid before cancellation. Retail sellers are not required to insure waivers on leased vehicles, and other creditors may, but need not, elect similar coverage. Debt waivers remain part of the finance agreement upon assignment, and funds belonging to assignees that are held by creditors or administrators must be held in a fiduciary capacity.

For VVPAs, the focus is on the provider’s financial responsibility. Each provider must choose one of three options: insure all VVPAs under an authorized insurer’s contractual liability insurance policy; maintain a funded reserve equal to at least 40% of gross consideration (less claims) plus a separate financial security deposit (subject to Attorney General oversight); or maintain, alone or with a parent, at least $100 million in net worth or stockholders’ equity, with a parent guarantee if the parent’s financials are used.

Enforcement, Integration, and Effective Date

The Attorney General is given primary enforcement authority for the new vehicle financial protection product framework and may use the existing remedies and tools available under Kentucky’s consumer protection laws. After notice and a KRS Chapter 13B hearing, the AG may issue cease‑and‑desist orders and impose civil penalties of up to $500 per violation, capped at $10,000 for similar violations arising from the same course of conduct, with judicial review available.