Credit Life and the Finance Charge Rule

When reviewing files, examiners often observe patterns that cause them to question the bank's compliance with certain requirements. One such pattern is often found in reviewing Truth in Lending disclosures. When examiners see a high percentage of customers purchasing credit life insurance, they will question whether the purchase is in fact voluntary. For example, when examiners find that 80% or more of the customers purchase credit life insurance, there is a strong presumption that the consumer's decision to purchase the insurance is not truly voluntary. If the credit life insurance is required, the cost of insurance is a finance charge, whether or not the customers have signed the disclosure indicating that they "want" to purchase insurance.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 13, 8/96