Question & Answer

Question: We sell credit life insurance to borrowers that get a mortgage loan from us. Do we have to make the Regulation Z insurance disclosures if the loan is to an individual but the loan is for business purposes? What about the NDIP disclosures?

Answer: If the loan is for a business purpose, it is not subject to Regulation Z. None of the Reg Z rules, including the insurance disclosures in ?226.4 would apply. There is really no reason to give them because they exist to keep the cost of insurance out of the finance charge. Proper disclosures and acknowledgment by the borrower mean that the cost of insurance is not a finance charge. Since the loan is a business purpose loan, the finance charge amount is not an issue.

When it comes to non-deposit products that the bank is selling, the issue is totally different. These disclosures are driven by the FDIC's goal of ensuring that bank customers do not confuse insured deposit products with non-insured products. It is the non-insured status of the product that triggers the disclosures and explanations for NDIP products; not the nature or status of the borrower. So, regardless of who the customer is, the bank should always make clear when a product is not an insured deposit.

Copyright © 2001 Compliance Action. Originally appeared in Compliance Action, Vol. 6, No. 1, 2/01