When we sell credit insurance with a mortgage loan do we need to provide the disclosure showing the amount of the premium and obtain the customer's signature saying they want coverage before the early-TIL, or does it meet the Reg Z requirement to do it at settlement? At the time of application we don't know the exact amount of coverage and the customer doesn't always know if they want coverage.

To exclude the insurance premiums from the finance charge 3 conditions must be met:
i) The insurance coverage is not required by the creditor and this fact is disclosed in writing.
ii) The premium for the initial term of insurance coverage is disclosed. If the term of insurance is less than the term of the transaction, the term of insurance also shall be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage.
iii) The consumer signs or initials an affirmative written request for the insurance after receiving the disclosures specified in this paragraph. Any consumer in the transaction may sign or initial the request.

These conditions are normally met at closing. If you don't know the premium amount, you coudn't meet the second condition. Provide this info with the final TIL not the early TIL.

The Mortgage Life Insurance would fall under the Consumer Protection in Sales of Insurance. This requires at application- oral/written disclosure and consumer acknowledgment. (See 12 CFR Part 14.40(b))

Maybe I'm missing something, but if you don't mention credit insurance until after committing to make a loan, you do not trigger the Consumer Credit Disclosure. Refer to the Q&A that was issued in Sept '01.

The original question was not about the Consumer Protection for Bank Sales of Insurance, it was whether the P-TIL must provide the premium for the credit insurance. The answer is "no" as this isn't triggered until the closing documents.

I realized the question posed was not the question answered after reviewing the posting.

I have also read the Q&A. But as a prudent practice for our institution, the insurance disclosures are provided at application. Our thought is the insurance will be "offered" by the fact it is "available" at any time during the application process (and beyond). To avoid confusion on timing the disclosures are provided at application as a standard procedure for all credit insurance products.

Prior to the insurance rule enactment (and currently), each our lending officers and loan assistants have a placard for the desk disclosing "Credit insurance is available to borrowers. No new loan, renewal or extension thereof is conditioned upon purchase of such insurance from the lender or any particular insurer or agent." This disclosure is also posted with our other lobby disclosure signage.

Thank you both. My primary concern is with the disclosures required by Regulation Z in order to exclude the premium from the finance charge, but the two are definitely linked.

DAVID: Your answer was based on a scenario where we don't offer the insurance until after the loan commitment is made. What if the lender offers credit insurance at the time of application? Are we required to meet the three Reg Z criteria at the time of loan application in order to exclude the premium from the finance charge on the early-TIL? Or would we be okay to exclude it from the finance charge on the early TIL based on the fact that we will meet the three Reg Z requirements by settlement?

Based on this scenario I know we would need to provide the Consumer Protection for Insurance Sales disclosure at the time of application (Anti-tying disclosure).

Thank you.

Lcoyle - if you have advertisements on loan officer desks and in your lobby, you must also have the advertising disclosures:
Not a deposit
No FDIC Insured
Etc.

Anonymous: even if you offer the insurance, no TIL disclosures are required until the final TIL is offered. You stated: Or would we be okay to exclude it from the finance charge on the early TIL based on the fact that we will meet the three Reg Z requirements by settlement? This is correct.

David,
I'm glad to hear that. I thought we were providing the disclosures for 226.4(d)at the time of loan application, but I just found out we that don't do it until settlement. I was getting nervous. It's good to know we didn't violate Regulation Z as a result. Can you tell me where to find something from the regulators that supports your statement? I have read many of your comments on this website, and I trust your expertise, but I always feel more comfortable having something from the regulation or a regulator's bulletin to back me up. Thank you.

The Commentary to Section 226.4(d)(1) (which says it is not a finance charge is properly disclosed and authorized) #2 says you can give with the P-TIL but also tells how to give it later (with the final TIL).

I read Comment #2 but I did not interpret it in the same way. Isn't it just referring to situations where the 226.4(d) disclosures are not made with the early-TIL because the coverage was not offered until later in the process?

I quote the commentary to 226.4(d)#2: "If insurance disclosures are not given at the time of early disclosures and insurance is in fact written in connection with the transaction, the disclosures under section 226.4(d) must be made in order to exclude the premiums from the finance charge."

No where does the section mention insurance offered later. The bold area implies that you plan to sell the insurance but don't get the non-finance charge authorization until closing. Seems pretty clear to me. If you cannot accept that, I'll flip it over. Show me where it says I have to put the authorization info on the PTIL.

You have a good point. I don't think the regulation or the commentary clearly spells out whether you must provide the disclosure before/with the early-TIL versus waiting until closing. I have been looking at it this way: If you need to tell the customer the cost of coverage and tell them that it is optional in order to exclude it from the finance charge then it might be difficult to justify excluding it from the finance charge in the early-TIL before you have given those pieces of information. I would think this is especially true if we take an application for insurance at the time we take an application for the loan.

Do any of your banks take the insurance application early in the loan process but wait to disclose the 226.4(d) items at closing? If so, have the examiners reviewed this practice?

What about some of the people who may be following this discussion? Do any of you have exam experience with this?

You asked: Do any of your banks take the insurance application early in the loan process but wait to disclose the 226.4(d) items at closing? If so, have the examiners reviewed this practice?

I have been a FDIC examiner, loan officer and now a consultant (13 years total). I have never seen a bank include the insurance premiums in the finance charge on the PTIL and I have never seen a bank critisized for not doing this.

Thanks David. That definitely gives me comfort.