Does a dealership need a license to sell GAP, service contracts?

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The author submitted this clarification a few days after publication: Upon receiving numerous responses to this article, including a couple of legal opinions, it is important to point out the Washington state statute regarding the sales of service contracts, highlights that the registration mandate actually refers to the obligor, or more simply put, the owner or administrator of the ancillary product.

In the case of Fred’s Appliance, it appears that their error was that they were the obligors, or direct owners and administrators of the service contracts they were selling. This is different than the ancillary products serviced by third-party administrators for which it would remove responsibility from the individual or dealership.

While it is always highly recommended and advisable to consult with trusted legal counsel on this, as with all compliance and legal matters, it certainly appears that this state’s requirements do not require individual or businesses to secure a separate registration.


By Charles Campbell

Is your dealership selling vehicle service contracts or GAP insurance without the proper licensing?

This is an important notice to dealerships everywhere. It would be highly advisable for the dealership to ensure that it is registered, licensed and in compliance with state insurance and other regulatory offices with regards to the dealership offering, negotiating or selling ancillary products, such as vehicle service contracts and GAP policies.

Every state has its own policies regarding what registration or licensing requirements must be in place in order for the dealership to offer, negotiate or sell these ancillary products.

Fred’s Appliance, which operates stores in Spokane and Kennewick, Wash., recently paid $448,627 in back taxes and a $10,000 fine for selling service contracts to customers in the state.

According to the Washington State Office of the Insurance Commissioner, selling service contracts in Washington is illegal without registering with the state.

In a direct conversation with the Washington State Insurance Commissioner’s Licensing Department, I was informed that RV dealerships need to have a business-entity resident producer license. Any employee involved in the direct “soliciting, negotiation or selling” of vehicle service contracts and, certainly, GAP policies must be registered and licensed.

Upon a quick scan and review of various other state insurance commission offices, it became immediately apparent that most, if not, all require some form of registration or licensing in order to offer, negotiate and sell either vehicle service contracts or GAP policies.

Some of the potential penalties for violations of these mandates can be quite expensive. Of course, a plea of “not knowing about such mandates” does not provide an adequate defense against assessed penalties.

It is time to conduct some early spring house cleaning.

Charles Campbell

Charles Campbell

Charles Campbell, SPFS, is the executive partner of the US Compliance Academy at Trans World Industries, LLC. Along with his extensive experience, over 30 years in the industry, ranging from F & I to General Manager, Charles is a nationally recognized authority in areas of F&I education and Federal rules, laws and regulations that relate to everyday dealership operations. You may reach Charles at

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