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#2206395 - 02/15/19 07:54 PM Lower Rate for Purchasing Credit Insurance
KeepSmiling Offline
Member
Joined: Jun 2008
Posts: 77
Are there any issues if we offer a better interest rate if the customer purchases credit insurance? Trying to think of any fair lending issues...

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Lending Compliance
#2206398 - 02/15/19 08:10 PM Re: Lower Rate for Purchasing Credit Insurance KeepSmiling
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,923
Galveston, TX
So what you are saying that in order to get the loan they have to purchase credit insurance? Sounds like you are making it required.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2206406 - 02/15/19 08:26 PM Re: Lower Rate for Purchasing Credit Insurance KeepSmiling
Rocky P Offline
Power Poster
Joined: Jun 2003
Posts: 7,441
Florida
Look at the profit margin for credit and GAP insurance. Last time I did a review, almost 85% was profit.

Look at the sales and concentrations to more nieve borrowers. One bank stopped it our of fear of UDAAP.
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#2206409 - 02/15/19 08:34 PM Re: Lower Rate for Purchasing Credit Insurance rlcarey
KeepSmiling Offline
Member
Joined: Jun 2008
Posts: 77
No, Randy, we won't condition the loan on taking credit insurance. We would still do the loan, but they wouldn't et a discounted rate if they don't take insurance.

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#2206411 - 02/15/19 08:43 PM Re: Lower Rate for Purchasing Credit Insurance KeepSmiling
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,923
Galveston, TX
Right - I have to have credit insurance to get the rate. How is the credit insurance then not required.

343.40(b) Credit disclosure. In the case of an application for credit in connection with which an insurance product or annuity is solicited, offered, or sold, you must disclose that the institution may not condition an extension of credit on either:

(1) The consumer's purchase of an insurance product or annuity from the institution or any of its affiliates; or

(2) The consumer's agreement not to obtain, or a prohibition on the consumer from obtaining, an insurance product or annuity from an unaffiliated entity.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2206433 - 02/18/19 03:58 PM Re: Lower Rate for Purchasing Credit Insurance KeepSmiling
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
In my career, I've seen a few banks do this. All of them are criticized for the Consumer Protection for Bank Sales of Insurance (Randy quoted in his last post) and potential UDAP issues. You can say you'll still do the loan (approval), but I don't think you can say you aren't conditioning the loan on taking insurance. You're offering a discounted rate. That's a condition. You're basically twisting their arm and most examiners are going to pick up on this. Interest rates are supposed to be a measure of risk.

My advise is price the loan on credit risk. Offer the insurance separately.
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David Dickinson
http://www.bankerscompliance.com

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#2206443 - 02/18/19 06:01 PM Re: Lower Rate for Purchasing Credit Insurance KeepSmiling
MScarn6942 Offline
Platinum Poster
Joined: Aug 2015
Posts: 756
Land Lacking in Lakes, IL
Agree with Randy and David... had this conversation with examiners a few years ago because my board (one director in particular) wanted us to consider doing exactly what you're describing. The exam team happened to be in when he brought it up and I will tell you it was not well received. Glad I checked in advance!
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#2206503 - 02/19/19 08:39 PM Re: Lower Rate for Purchasing Credit Insurance MScarn6942
KeepSmiling Offline
Member
Joined: Jun 2008
Posts: 77
Thanks everyone for your clarification and help!

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