Recently, Kentucky enacted SB 158, establishing a regulatory framework for “vehicle financial protection products” (VFPPs). The law creates new sections of KRS Chapter 367 that define and regulate two categories of VFPPs: (i) “debt waivers,” which include guaranteed asset protection waivers and excess wear and use waivers; and (ii) “vehicle value protection agreements,” which provide benefits upon specified adverse events affecting a vehicle such as loss, theft, damage, depreciation, or diminished value. Notably, the law provides that VFPPs are not considered insurance regardless of issuance date. The law prohibits conditioning the extension of credit, loan terms, or vehicle sale or lease terms on a consumer’s purchase of a VFPP, and provides that amounts charged or financed for such products are authorized charges that are not considered a finance charge or interest.

Debt waivers offered by a state or federal bank or credit union in compliance with applicable law are exempt from the new requirements. Retail sellers offering debt waivers must generally obtain an insurance policy to secure their waiver obligations, with an exception for leased vehicles. Both debt waivers and vehicle value protection agreements must include written disclosures covering terms and conditions, cancellation rights, a “free look period” of at least 30 days, and refund procedures. Providers of vehicle value protection agreements must satisfy one of three financial security options: (i) maintaining an insurance policy; (ii) holding a funded reserve account of at least 40 percent of gross consideration (less claims paid) plus a financial security deposit with the attorney general; or (iii) maintaining a net worth of at least $100 million. Vehicle value protection agreements must also disclose that they are not contracts of insurance.

The law also creates new sections of Subtitle 19 of KRS Chapter 304 governing credit personal property insurance, from which VFPPs are expressly excluded. The attorney general is authorized to enforce the VFPP provisions and may impose civil penalties of up to $500 per violation, not to exceed $10,000 in the aggregate for violations of similar nature, following notice and a hearing under KRS Chapter 13B. The VFPP provisions take effect January 1, 2027.