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...

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.

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.

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.

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.

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.

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!

Thanks everyone for your clarification and help!