Cancellations, Refunds and Chargebacks: A Reference for VSC and GAP

01Who actually owes the refund

A dealer-sold VSC or GAP waiver usually involves four parties, and the refund obligation does not sit in the same place in every state or for every product.

The statutes do not agree on whose duty it is. Texas puts the VSC refund on the provider (Tex. Occ. Code § 1304.1581). California’s statute directs the seller to refund (Cal. Civ. Code § 1794.41(a)(4)); forms backed by insurers may also be governed by the Insurance Code (§ 1794.41(c)). Florida requires the “insurer or service agreement company” to return the post-60-day refund “directly to the agreement holder” (Fla. Stat. § 634.121(3)(b)). For GAP, California and Texas place the first duty on the holder of the finance contract, which must either refund or instruct the administrator in writing (Cal. Civ. Code § 2982.12(b)(3); Tex. Fin. Code § 354.007(e)–(e-1)).

Your dealer agreement and your finance-source agreements then move that duty around. Part One describes the usual arrangement: indirect finance agreements provide that the dealer refunds unearned charges, and the finance source may debit the dealer’s account if the dealer does not. How those agreements interact with the duty a statute places on a named party, including when a refund is paid late, is a question to ask your counsel.

02VSC cancellation: ten states and the model act

The table covers cancellation by the contract holder. “Free look” means the period in which a cancellation earns a full refund. Deadlines and penalties are given only where the statute states them. “None stated in § X” means we read that section and it contains no such term. It does not mean no other law applies.

These rows agree with the four-row table in Part One, § 06. Four points from the text are worth adding.

The free look is not always a clean full refund. Texas and Florida deduct claims paid even in the first 30 or 60 days. Illinois allows a stated cancellation fee even within its 30-day window. California gives a full refund only if no claim was made. New York voids the contract and refunds the full price only if no claim was made. Georgia refunds the full price less claims paid, and voids the contract with a full-price refund if no claim was made.

A deadline without a penalty is weaker than one with a penalty. Texas (10% a month once the refund is late), New York and Georgia (10% a month, but only for the free-look refund) and the NAIC model each attach a penalty. California, Florida, Illinois and North Carolina set no refund deadline in the sections we read.

Florida after 60 days. The statute says the insurer or service agreement company “shall return directly to the agreement holder not less than 90 percent of the unearned pro rata premium, less any claims paid” (§ 634.121(3)(b)). The 5 percent administrative fee provision appears in the 60-day cancellation provision (§ 634.121(3)(a)). Ask your provider how its Florida forms apply both.

“Pro rata” leaves a choice open. Several statutes allow time, mileage or another measure, and California leaves the choice to the obligor at cancellation. The measure chosen can change the refund a great deal on a high-mileage vehicle. Part One’s position still holds. We found no state among the seven whose VSC provisions we read that affirmatively permits a short-rate or Rule of 78s refund on a VSC. New York’s statute is silent after the free look; ask how your forms handle refunds in that period.

03GAP: waivers, insurance, and the early-payoff refund

“GAP” covers two legally different products.

A GAP waiver (also called a debt cancellation agreement or a GAP product) is a term of the credit contract. The creditor agrees, for a charge, to cancel part of the debt after a total loss. Several states say outright that it is not insurance. Florida says so for a GAP product sold under § 520.07(11), and Ohio says “a debt cancellation or debt suspension product shall not be considered insurance” (Ohio Rev. Code § 1317.05(B)). Waivers are usually regulated through the state’s sales-finance law or a dedicated GAP waiver act.

GAP insurance is an insurance policy, and unearned premium on it is refunded under the state’s insurance code. The CFPB’s November 2023 Toyota Motor Credit consent order, terminated May 12, 2025, referred to “GAP and CLAH premiums” (see section 07). We did not survey insurance-code refund rules for GAP insurance state by state.

Many states enacted GAP waiver acts with similar wording. Georgia’s and Michigan’s are close to identical. The key sentence says that after the free look, the borrower “may be entitled to a refund of any unearned portion of the purchase price of the waiver unless the waiver provides otherwise,” and must make a written request within 90 days (O.C.G.A. § 33-63-7(b); Mich. Comp. Laws § 492.29(b)). Both acts also say a waiver may be cancelable or noncancelable after the free look (O.C.G.A. § 33-63-7(a); Mich. Comp. Laws § 492.29(a)), and Florida says the same of GAP products (Fla. Stat. § 520.07(11)(h)). California and Texas take a different approach. Early payoff itself triggers the refund, and the holder has a fixed number of days to act.

In California, Florida, Georgia and Michigan, the creditor may apply the refund to the remaining balance rather than paying the borrower directly, unless the contract has been paid in full (Cal. Civ. Code § 2982.12(b)(3)(A); Fla. Stat. § 520.07(11)(i); O.C.G.A. § 33-63-7(d); Mich. Comp. Laws § 492.29(d)). On an early payoff, any refund due arises after the loan is gone, so it has to be paid in cash.

04How the refund moves, event by event

The customer only asks for a cancellation in one of these events. In the rest, the refund depends on someone else noticing that the contract has ended.

The practical result is that the party with the statutory duty, the party that knows the event happened, and the party that bears the chargeback are often three different companies. Many cancellation problems can start in that gap rather than in the arithmetic.

05The chargeback, mechanically

Part One summarized the chargeback in one line: you refund the customer at retail, and the administrator credits you at its cost. Here is the arithmetic.

When a contract is sold, the retail price splits into what goes to the administrator or obligor (dealer cost, which covers the reserve, the insurer’s premium, administration and any producer compensation) and what the dealer keeps (the markup). When the contract is cancelled, the unearned share of both parts has to come back. The administrator returns the unearned share of what it received. The dealer returns the unearned share of what it kept, usually by a debit against its account or future remittances. That debit is the chargeback.

Texas has written this split into its GAP statute. On instruction, the administrator, or the administrator and the retail seller, “shall provide a refund or credit … proportional to the amount received by the administrator and retail seller under the agreement” (Tex. Fin. Code § 354.007(f)).

A hypothetical, for illustration only

The figures below are invented to show the mechanics. They are not typical prices, typical margins or any company’s schedule. We could not source a “typical” chargeback schedule, as Part One also noted.

Three things change the numbers in practice. First, the statutory cancellation fee and any claims deduction reduce the customer’s refund. Who keeps the fee is usually set by the dealer agreement; the statutes we read do not say. Second, if the obligor uses mileage, or the lesser of time and mileage, the unearned share can be much smaller or larger than the time share. Third, if the dealer participates in a reinsurance or profit-sharing structure, the ceded premium on a cancelled contract usually comes back out of the reinsurance account as well. Part Five covers that flow. Agent compensation is often charged back in proportion too, under the agent agreement.

06Events dealers never learn about, and how to find them

As Part One noted, a supplier may surface a cancellation months or years late and say it had no way to know that coverage should have stopped. The late surprise can go either way. A dealer can receive an old chargeback, or it can find, long after the event, that an unearned refund was never paid, in a state that may set a refund deadline.

The events most often missed are cash payoffs, refinances with another lender, repossessions that end in auction, total losses paid to the lender, and trade-ins at other stores. Each one is known first to the finance source, and none of the provisions we read requires the finance source to tell the dealer, with one exception. Under Texas’s GAP statute, a holder other than the original retail seller that chooses to instruct the administrator must send that written instruction to “the administrator of the agreement and the retail seller” (Tex. Fin. Code § 354.007(e-1)).

Detection methods, from strongest to weakest

1. A cancellation or payoff feed from each finance source to the administrator. Ask which lenders send one, in what format and how often. Part Eight covers the integration side.
2. A periodic reconciliation of your in-force contract list against loan status on your own funded deals, where your finance-source agreements give you access.
3. Payoff requests from other dealers on trade-ins. These are a signal that the contract has probably ended.
4. The administrator’s cancellation and chargeback reports, reviewed for age. A chargeback dated long after the event suggests the detection process has failed somewhere.

07The federal layer and the enforcement record

CFPB: Toyota Motor Credit (2023)

On November 20, 2023, the CFPB ordered Toyota Motor Credit Corporation to pay $48 million in redress and a $12 million civil penalty. The company consented to the order and neither admitted nor denied the Bureau’s findings (Consent Order ¶ 5). The CFPB’s November 2023 consent order stated that the company did not ensure refunds of unearned GAP and credit life and accidental health (CLAH) premiums when consumers paid off loans or ended leases early, and that faulty system logic produced incorrect refunds for consumers who cancelled vehicle service agreements. The Bureau’s announcement stated that Toyota Motor Credit “will pay nearly $32 million to consumers who did not receive refunds on unearned GAP and CLAH premiums.” That figure covers both products: the order allocates $28,962,515 to GAP refunds and $3,011,749 to CLAH refunds (Consent Order ¶ 87(c)–(d)). The announcement also stated that “between 2016 and 2021 alone, Toyota Motor Credit funneled more than 118,000 consumer calls” through a retention hotline, and that representatives were instructed to keep promoting the products “until a consumer had verbally requested to cancel three times.” Part Two also discusses the order.

What changed in 2025. The CFPB’s enforcement page for the matter now states that on May 12, 2025 the Bureau “terminated this Consent Order and waived any alleged non-compliance therewith,” citing 12 U.S.C. § 5563(b)(3).

CFPB: Supervisory Highlights, October 2024

The CFPB’s Supervisory Highlights, Special Edition: Auto Finance (Issue 35, October 2024), described in Part Two, reported examiner findings at supervised auto finance companies. These included amounts collected for add-on products consumers did not agree to buy, GAP financed despite being void because of loss events on the vehicle’s title history, and servicers requiring two in-person dealership visits to cancel. The report stated that examiners found it unfair that servicers did not apply refunds of unused add-on premiums on time. In one matter, refunds were applied an average of 84 days after the post-repossession sale, with at least one up to 423 days; in another, delays ranged from 150 to 664 days.

FTC: CARS Rule vacated, Section 5 continues

On January 27, 2025, the Fifth Circuit vacated the FTC’s Combating Auto Retail Scams (CARS) Rule in National Automobile Dealers Association v. FTC, No. 24-60013, on procedural grounds: the Commission had not issued the advance notice of proposed rulemaking its own procedures required. The ruling did not touch Section 5 of the FTC Act. As Parts One and Two record, the FTC sent warning letters to auto dealers in March 2026 and named 97 dealerships publicly that May. Its earlier add-on cases, described in Parts One and Two, were brought under existing authority.

States

Part One notes state attorney general activity on F&I add-ons in Rhode Island, Arizona, Illinois, Connecticut and Maryland. We looked for 2025–2026 state attorney general settlements specifically over GAP or VSC refunds and could not verify any from a primary source within this review. We have not named any, because a name without an order behind it would not be accurate.

08Recordkeeping

Only one of the provisions we read sets a specific retention period for refunds. Texas requires the GAP administrator and the retail seller to keep records of any refund or credit and provide electronic access to them until the later of the fourth anniversary of the contract date or the second anniversary of the refund (Tex. Fin. Code § 354.007(g)). Other states’ retention rules, and the rules of each finance source, need checking separately.

Whatever the statute requires, a cancellation file that can answer a regulator or a customer complaint usually contains:

• the date the cancellation request or terminating event was received, and by whom;
• the odometer reading and the method used (time, mileage, or other);
• claims paid and fees deducted, with the statutory basis for each;
• the date the refund was paid or credited, to whom, and by which party;
• the chargeback entry that matches it.

A dealer that keeps only the chargeback statement has half the record. The customer-side half, meaning what was paid, when and to whom, is what a regulator asks for.

09If you are the customer, and the questions for a provider

For consumers. Your contract should say how to cancel, whom to send the request to, and how the refund is calculated. Send the request in writing and keep proof of the date. If you paid off the loan early and bought GAP, check whether your state and your waiver require you to ask for the refund, and do so within any stated deadline (90 days in Georgia, Michigan and Florida). If the loan is still open, the refund may be applied to your balance rather than paid to you. If a refund does not arrive, your state’s regulator for service contracts or consumer credit is the place to complain.

10How we built this, and what we could not verify

Each state cell comes from reading the statute section cited, through the state legislature’s site or a public mirror of it (FindLaw, Justia), or from the regulator’s own publication (New York DFS, Texas OCCC). Enforcement material comes from the CFPB’s own pages, the Toyota consent order, the Supervisory Highlights report and the Fifth Circuit’s opinion. The FTC’s 2026 warning letters and the state attorney general activity are carried over from Parts One and Two.

What we could not verify, and therefore left marked:

• VSC cancellation rules in Pennsylvania, Ohio and Michigan. In each state we read the statute that defines or exempts service contracts and found no holder-cancellation terms for VSCs. We could not confirm that no other provision applies, so the cells say “Not verified” instead of “none”.
• GAP refund rules in Illinois, Pennsylvania and North Carolina, and outside § 302-A in New York. We could not retrieve and read the relevant statute text within this review. These states may well have rules, and a reader should not assume they do not.
• Whether Georgia’s GAP act sets a minimum free-look period in its definitions section. Michigan’s near-identical act does (30 days).
• Refund deadlines outside the service contract statute, for example in retail installment sales laws, for California, Florida, Illinois and North Carolina.
• Insurance-code refund rules for GAP insurance, state by state.
• 2025–2026 state attorney general settlements over GAP or VSC refunds. None verified.
• A “typical” chargeback schedule or refund timeline. No reliable source exists that we could find, and the hypothetical in section 05 is invented for illustration.

Statutes and regulator positions change. California amended its GAP provisions effective January 1, 2025. Texas amended its GAP refund section effective September 1, 2023. The CFPB terminated the Toyota order on May 12, 2025. These rules are current as of September 2026. This is not legal advice, and a dealer or provider should confirm each state’s current text with counsel before relying on it.