I was having a discussion with someone today and a question came up: What are most bankers doing with respect to the consumer protection insurance disclosure and VSI (vendor's single interest insurance)?

How about it? Are you giving the disclosure in connection with VSI, or not?

We give the CPID to all consumer loan applicants at the time of application.

I am assuming you are referring to selling the customer VSI when the loan is made. If the premium is passed to the borrower then IMO the CPID would be required.

I don't know? I think VSI would be treated like PMI insurance. It's actually insurance that only usually protects the bank and you are only passing the cost of the insurance thru to the borrower. The joint agency guidance from August 17, 2001 addressed this issue. If it's optional, then I would agree that it would be required.

VSI Thread

We are currently undergoing a FDIC Compliance examination and what we do is to give the Insurance Disclosure with all applications whether they purchase insurance or not. We have a combined statement that covers the appication and purchase of insurance. That procedure seems to meet with FDIC. VSI insurance is included as an insurance that requires the Disclosure. Remember we don't have to sell the insurance it's just that we could offer the insurance

OK - But I'm starting to get really confused about VSI. In the old days, when a customer failed to maintain insurance coverage we would force place VSI coverage on the auto and pass along the costs. What are you selling up front and why? The customer has to purchase it or not? How can a customer be free to purchase it elsewhere?

And the real question is, if banks want VSI coverage, why don't they just buy a blanket policy and not screw with all the disclosures and questions. Just price it into you A&L management of the product.

I am currently in the middle of a major problem. Our VSI policy is for reposession expenses. I am arguing that it is a finance charge and lending is stating that because the customer can purchase this insurance anywhere it is not. The insurer does subregate (?sp) this and on the note we tell them that they can purchase this anywhere but I disagree. I feel that they need to include this in the finance charge and to give out some disclosure on the ap/brochure.

In New York State If the bank offers the VSI Insurance it is mandatory on all loans - Installment Loans (except liquid collateral) then it does not have to be included in the FC or APR. No further disclosure is necessary. Check your VSI Policy more closely, this insurance cannot be purchased by the borrower, and there are many other benefits to the bank other than repossession expenses.

We are supervised by the FDIC. We had a problem disclosing VSI insurance and they said that "it is a finance charge if you don't mark the box that you can purchase it anywhere". So as long as you give the customer the choice it does not have to be included in the finance charge.