Bank Club Accounts & Insurance Disclosures

by Mary Beth Guard, BOL Guru

Question: We have conflicting information about whether we give an insurance disclosure with accounts when a customer chooses the bank club account. Accidental insurance is one of the benefits received with our club accounts. Do we give them a disclosure? If we do, is it the same one given on credit life on the loans?

Answer: There are two types of disclosures under the consumer protect insurance rule. One is an anti-coercion disclosure. It is only required when insurance is offered, solicited, or sold in connection with an application for credit. With your deposit account, I am assuming there is no credit component, so that disclosure would not come into play. The second disclosure is often referred to by compliance officers as the "Not, Not, Not" disclosure, since it requires you to state the insurance product is not a deposit or other obligation of, or guaranteed by, the bank or an affiliate of the bank, and not insured by FDIC or any other agency of the U.S., a bank, or an affiliate of a bank.

These disclosures must be given in connection with the initial purchase of an insurance product or annuity by a consumer from you. (See our previous article on these disclosures for more information about when a purchase of insurance is deemed to be from you.)

So, the issue becomes, "Is the customer really "purchasing" insurance when they obtain a Club Account?" If the customer is paying for the insurance, directly or indirectly, the answer would probably be "yes", although there's been no formal written pronouncement from the regulators on this club account insurance issue, to our knowledge. Is there an additional monthly charge for the Club Account that may be deemed attributable to the insurance? If so, it could be argued the customer is purchasing the insurance and the disclosure would be required. Take a good hard look at the actual facts surrounding the account.

If this were merely a requirement for you to give the customer one more piece of paper, that wouldn't be much of a problem. Unfortunately, this particular regulation also requires you to give an oral disclosure, as well as the written one, and to obtain customer acknowledgement of the disclosure.

Originally appeared in the November 2001 edition of the Oklahoma Bankers Association Compliance Informer.

First published on BankersOnline.com 3/25/02