KRS 367.706: Definition of administrator -- Duties of retail seller of vehicles relating to

debt waivers -- Debt waiver requirements. (Effective January 1, 2027)

(1) As used in this section, "administrator" means a person, other than an insurer or

creditor, that performs administrative or operational functions relating to debt

waivers.

(2) (a) 1. Except as provided in subparagraphs 2. and 3. of this paragraph, a retail

seller of vehicles shall insure its debt waivers under a contractual

liability policy or other insurance policy that:

a. Is issued by an insurer;

b. States an obligation by the insurer to reimburse or pay to a creditor

under the debt waiver any sums the creditor is legally obligated to

waive under a debt waiver;

c. Remains in effect unless cance led or terminated in compliance

with applicable insurance laws of this state; and

d. Provides that the cancellation or termination of the policy shall not

reduce the insurer's responsibility for any debt waivers that are:

i. Issued by a creditor prior to t he date of cancellation or

termination; and

ii. Insured under a policy for which a premium has been

received by the insurer.

2. To the extent permitted under KRS Chapter 304, a cancellation or

termination of a contractual liability policy or any other insurance policy

required under subparagraph 1. of this paragraph may reduce the

insurer's responsibility for any debt waiver if the policy is canceled or

terminated due to fraud.

3. A retail seller of vehicles shall not be required to comply with

subparagraph 1. of this paragraph for leased vehicles.

(b) A creditor that is not otherwise required to insure its debt waivers under

paragraph (a) of this subsection may insure its debt waivers under a

contractual liability or other insurance policy that:

1. Is issued by an insurer; and

2. Complies with this subsection.

(c) An insurance policy referenced under paragraph (a) or (b) of this sub section

may be:

1. Obtained directly by the retail seller or other creditor; or

2. Procured by an administrator.

(3) (a) A debt waiver shall remain a part of a finance agreement upon the assignment,

sale, or transfer of the finance agreement by the creditor.

(b) For a debt waiver that is insured under a contractual liability policy or other

insurance policy, a creditor shall:

1. Report the sale of any finance agreement that includes the debt waiver to

the insurer; and

2. If applicable, forward any funds due to the assignee, buyer, or transferee

of the finance agreement.

(c) Funds that are received by a creditor or administrator and that belong to an

assignee, buyer, or transferee of a finance agreement shall be held by the

creditor or administrator in a fiduciary capacity.

(4) A debt waiver, other than a debt waiver offered in connection with a commercial

transaction, shall disclose the following, in writing and in clear and understandable

language that is easy to read:

(a) That the following shall not be con ditioned on the borrower's purchase of a

debt waiver:

1. The extension of credit;

2. The terms of the loan; or

3. The terms of any related vehicle sale or lease;

(b) The name and address of:

1. The initial creditor and the borrower of the finance agreement; and

2. The administrator, if applicable;

(c) The terms and conditions of the debt waiver, including:

1. The purchase price of the debt waiver, if any;

2. The requirements for protection, conditions, and exclusions; and

3. The procedure the borrower must follow, if any, to obtain benefits under

the debt waiver, including, if applicable, a telephone number or website

and address where the borrower may apply for the benefits;

(d) That the borrower:

1. May cancel the debt waiver within a free look period of not less than

thirty (30) days, as specified in the debt waiver; and

2. Will be entitled to a full refund of the purchase price paid by the

borrower, if any, if:

a. The borrower cancels the debt waive r during the free look period;

and

b. A benefit has not been provided;

(e) Whether the debt waiver is cancellable after the free look period and the

conditions under which it may be canceled, if applicable, including the

procedures for requesting any refund of amounts paid;

(f) If the debt waiver is cancellable after the free look period, the borrower may

be entitled to a refund of the unearned portion of the purchase price of the

debt waiver, if any, less an administrative fee of not more than seventy -five

dollars ($75), if a benefit has not been, and will not be, provided;

(g) If the borrower seeks a refund under paragraph (f) of this subsection, the

borrower shall, in accordance with the terms and conditions of the debt

waiver, provide a written request t o cancel to the creditor or administrator,

except if the borrower seeks a refund due to the early termination of the

finance agreement, the borrower shall provide the written request to cancel

within ninety (90) days of the occurrence of the event terminat ing the finance

agreement;

(h) The methodology for calculating any refund under paragraph (f) of this

subsection, if any; and

(i) If the cancellation of a debt waiver is due to a default under the finance

agreement, the repossession of the vehicle associat ed with the finance

agreement, or any other early termination of the finance agreement, any

refund due may be paid directly to the creditor or administrator and applied as

a reduction of the amount owed under the finance agreement, unless the

borrower can show that the finance agreement has been paid in full.