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#412 - 01/09/01 07:03 PM Final insurance rules
Jan94 Offline
Platinum Poster
Joined: Mar 2001
Posts: 828
USA
Our understanding is that these final rules also apply to the sale of credit life and disability insurance. How does this apply to the location requirement? Meaning in a loan situation where the consumer purchases credit life or disability insurance, does the lender need to have some signage stating "Not FDIC-insured, Not a bank product; May lose value" on their desk? In our bank, we do have a separate area for the sale of other insurance products, but not for credit life. Could this be a problem, or am I overthinking this? Thank you.


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General Discussion
#413 - 01/09/01 07:09 PM Re: Final insurance rules
Mary Beth Guard Offline
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Mary Beth Guard
Joined: Oct 2000
Posts: 797
Oklahoma City, OK
Under the guidelines for the sale of nondeposit retail investment products, you wouldn't have to worry about it. The "Not FDIC insured" type disclaimers only come into play with nondeposit retail investments. In the insurance context, that would include annuities, for example, but would not include credit life or similar types of insurance. (See Excerpt from Pocket Guide. The distinction is that in one instance the customer is making an investment. In the other, he is purchasing true insurance coverage.

The NEW rules Angela is referring to above, however, are the new Final rules of the banking regulators relating to Consumer Protections for Depository Institution Sales of Insurance That is a whole different ball of wax. They refer to "apply to retail sales practices, solicitations,advertising, or offers of insurance products by depository institutions or persons engaged in these activities at an office of the institution
or on behalf of the institution." Their effective date is April 1, 2001.

It seems clear to me that these rules would apply to credit life and related insurance, particularly if you look at the provisions on antitying and anticoercion.

I have revised my posting accordingly. It was probably obvious that my previous post was referring to the nondeposit retail investment guidelines. I think I just didn't notice Angela's subject line. ;-(

[This message has been edited by Mary Beth Guard (edited 01-12-2001).]


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#414 - 01/11/01 02:50 PM Re: Final insurance rules
CSpellman Offline
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Joined: Nov 2000
Posts: 176
Under the new COnsumer Protection for Institution Sales of Insurance, credit life and A& H are covered. The term in the regulation is insurance products which is not defined (therefore we interpret that to include CL and A& H). Part of the disclosures warranted by this reg. are:
a. Insurance product is not a deposit or guaranteed by the depository institution
b. Is not insured by the FDIC

As you know there are other requirements with implementation but we are providing disclosure on our loan insurance sales.

_________________________
...but I saved a lot on my auto insurance

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#415 - 01/11/01 11:02 PM Re: Final insurance rules
tsorbe Offline
Member
tsorbe
Joined: Dec 2000
Posts: 55
Brookings, SD
It would seem obvious that credit life insurance coverage would not be a "deposit or other obligation of, or guaranteed by, the depository institution" and "is not insured by the FDIC or any other agency...". Therefore, the required language in section 40(a)(1)-(2) would seem unapplicable.

But the discussion in the final rule of the comments received on the proposal addresses the question and the regulators respond by requiring the disclosure for all types of insurance products (see top of third column on p. 75826 of the FR). In fact, the only exception to the required disclosures in 40(a) are those that would be "inaccurate" (i.e. false).

We view that since credit life is not a deposit or guaranteed by the bank and is not insured by the FDIC - the disclosure in sect 40(a)(1)-(2)(albeit obvious and seemingly unnecessary) is accruate and therefore required.

_________________________
Trent Sorbe President First Community Financial, Inc. Brookings, SD

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#416 - 01/12/01 01:48 PM Re: Final insurance rules
Anonymous
Unregistered

The ABA Bank Compliance flyer for Dec. has an article about insurance sales. It says the final rule provides that no disclosure is required that does not make sense. Do disclosures saying NOT FDIC INSURED make sense for A&H and CL?

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#417 - 01/12/01 03:28 PM Re: Final insurance rules
tsorbe Offline
Member
tsorbe
Joined: Dec 2000
Posts: 55
Brookings, SD
That is true Jane. But notice the example provided by the ABA in the article. You wouldn't say that a flood insurance policy was not guaranteed by a federal agency (as required by 343.40(a), when in fact, flood insurance IS guaranteed by a federal agency. Again, the question is whether or not the disclosure is factually inaccurate. Since credit life insurance is not guaranteed by a federal agency, the dislosure is accurate (albeit seemingly obvious).
_________________________
Trent Sorbe President First Community Financial, Inc. Brookings, SD

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#418 - 01/29/01 06:59 PM Re: Final insurance rules
De Vonne Offline
Member
Joined: Jan 2001
Posts: 84
In discussing this issue with a management-type at my bank, she is reading the disclosure section 208.84 as a two-part requirement. She says part (a) Insurance Disclosures applies to products that you would sell as a non-deposit investment. She then goes on to say that part (b) Credit Disclosure is to be used in connection with a credit application only (A+H, etc), thus part (a) would not be required. Note that beginning with part (c) the text speaks about parts (a) and (b) as if one is required specifically for insurance sales and one is required specifically for sales in connection with credit applications; but not saying that BOTH are required for ALL sales. Basically, if you sell an annuity, disclose part a. If you sell A+H, disclose part b.

The second question then becomes, what happens with title insurance? As with mortgage insurance, we are not collecting commissions, however, the bank is identified in the documents evidencing the sale of the insurance and the premiums, as with mortgage insurance, are passed onto the provider.

Any help?

[This message has been edited by De Vonne (edited 01-29-2001).]


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#419 - 01/29/01 07:42 PM Re: Final insurance rules
De Vonne Offline
Member
Joined: Jan 2001
Posts: 84
Another question comes to mind. It looks like all are in agreement that loan-related insurance products are covered by the regulation. Hence, section 208.86 says "a bank may not permit any person to sell or offer for sale any insurance product or annuity ...... unless the person is at all times appropriately qualified and licensed under applicable insurance licensing standards...."

Does anyone reside in a state that requires such licensing? Would you have to then require loan officers/loan personnel to become licensed to offer PMI?


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#420 - 01/29/01 08:04 PM Re: Final insurance rules
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,281
We have not reached final official conclusions yet, but are right now viewing lender's title and PMI as not covered. We are merely charging the client for insurance covering the bank...the client is not being sold an insurance product covering him. We are the insured. I am trying to ascertain if we have ever placed an owner's title policy with our affiliate title insurer - the implications there look ugly. If the client says "you go ahead and order the title insurance" and we place it with our affiliate and they just show up at closing with policies to be charged to the client, does that mean my employee who spoke with the client sold a policy? If so, we may just refer clients to the title company themselves to order owner's title. We lend in all 50 states!
_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#421 - 02/01/01 05:41 AM Re: Final insurance rules
Bear Collector, CRCM Offline
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Bear Collector, CRCM
Joined: Nov 2000
Posts: 1,830
District of Columbia
We are struggling with this, too! Regarding PMI and LPMI: according to the final rules, ""A purchase includes any transaction where there is a cost to the consumer for the insurance either directly or indirectly such as a higher interest rate on a loan." (FR Vol 65, p.75823) There is no distinction between who is the insured (the bank or the customer). We sell LPMI, where the cost to the consumer is passed on via a higher interest rate on the loan. So again, is PMI or LPMI covered under these rules?
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Being kind is more important than being important.

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#422 - 01/31/01 06:04 PM Re: Final insurance rules
Carin Eisenhauer Offline
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Carin Eisenhauer
Joined: Jun 2000
Posts: 596
Edmond, OK
For your convenience in accessing the final rules, here's a link.


http://www.bankersonline.com/topstory/fedreg/65FR75821.txt


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#423 - 01/31/01 06:12 PM Re: Final insurance rules
De Vonne Offline
Member
Joined: Jan 2001
Posts: 84
PMI/LPMI or whatever insurance product is sold appears to be covered as the final rule makes no distinction as to type of insurance. But which disclosure do you use? My people here are telling me that only the anti-coercion part (b) is required for mortgage-related insurance and not part (a) which discusses "NOT FDIC INSURED" etc. The way it reads, one could make the case that both parts should be disclosed. Anyone?

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#424 - 01/31/01 06:41 PM Re: Final insurance rules
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,281
Again, not final, but our lawyers right now feel that the customer who pays for the bank's insurance is NOT purchasing insurance. They are reimbursing the bank for insurance the bank purchased. We are in the debating definitions stage, but the feeling is that the customer did not make a purchase because they did not receive a product, we did. If this changes, I'll let you know!
_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#425 - 01/31/01 06:44 PM Re: Final insurance rules
De Vonne Offline
Member
Joined: Jan 2001
Posts: 84
That's an excellent point, thanks. I'll be watch for further info.

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#426 - 02/06/01 10:48 PM Re: Final insurance rules
Anonymous
Unregistered

Back on 1-29-01, DeVonne opined that part (a) applies to annuities, etc. and part (b) applies to A&H and CL. No one else after that seemed to either agree or disagree. Does anyone have any thoughts about whether the two parts can be applied separately. Or whether part (a) does in fact apply to CL? It seems to make sense that one is for nondeposit type products and the other for credit insurance. (But whoever said regulations were supposed to make sense?)

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#427 - 02/09/01 09:10 PM Re: Final insurance rules
Pat Patrick Offline
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Joined: Dec 2000
Posts: 23
Winston-Salem, NC
RE: PMI coverage: Word through the ABA is that the banking agencies have determined that the Section 305 insurant regs will not apply to sale of private mortgage insurance, since it's for the protection of the lender,
not the borrower. And Wachovia separately talked to an OCC staff member who confirmed that.
_________________________
Pat Patrick Wachovia Corp. Compliance 336-732-3394 pat.patrick@wachovia.com

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#428 - 02/09/01 09:52 PM Re: Final insurance rules
De Vonne Offline
Member
Joined: Jan 2001
Posts: 84
A staff member from the FRB informed me that PMI would be subject to the rule because Section 305 of GLB indicates "all insurance products" and does not define which types of insurance products are not affected. Also, the Federal Register specifically speaks to mortgage insurance as a covered product. Check out the preambles and the discussions regarding the comments the agencies received on this subject.

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#429 - 02/12/01 01:33 PM Re: Final insurance rules
Bear Collector, CRCM Offline
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Bear Collector, CRCM
Joined: Nov 2000
Posts: 1,830
District of Columbia
FYI: The OCC is here at our bank for the next few weeks doing a safety and soundness exam. I put a bunch of questions regarding this insurance rule together in written form, and gave them to our OCC portfolio manager. He promises to get back to me with an answer soon, and I will post anything I learn from him. Even for those of you who are not OCC banks, ANY clarification would be helpful at this point!
I will keep you posted.
_________________________
Being kind is more important than being important.

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#430 - 02/12/01 02:20 PM Re: Final insurance rules
Cathy H Offline
New Poster
Joined: Jan 2001
Posts: 5
Richmond, IN USA
But how would the disclosure be made for PMI?? In this case, the credit decision IS dependent on whether or not the customer purchases the insurance!

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#431 - 02/12/01 03:26 PM Re: Final insurance rules
De Vonne Offline
Member
Joined: Jan 2001
Posts: 84
Regarding PMI;

"The depository institution may not condition an extension of credit on either the consumer's purchase of an insurance product or annuity FROM THE DEPOSITORY INSITUTION OR ANY OF ITS AFFILIATES OR THE CONSUMER'S AGREEMENT NOT OT OBTAIN, OR A PROHIBITION ON THE CONSUYMER FROM OBTAINING, AN INSURANCE PRODUCT OR ANNUITY FROM AN UNAFFILIATED ENTITY.

This appears to be saying that as long as you give the consumer the option to purchase PMI from whomever they like, you're ok.


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#432 - 02/12/01 03:37 PM Re: Final insurance rules
Pat Patrick Offline
New Poster
Joined: Dec 2000
Posts: 23
Winston-Salem, NC
1. Re: whether PMI is covered: We continue to maintain that it's not directly or indirectly a purchase by the consumer. Our PMI contract is between the bank/mortgage company and the insurance company, not between the consumer and the PMI company (we purchase it for our protection & pass cost on to borrower). The reg defines a covered consumer [14.20(d)] needing the disclosure as "an individual who purchases, applies to purchase, or is solicited to purchase...." And the disclosure rules [14.40(c)(1)]talk about "sale of an insurance product...to a consumer." The consumer doesn't get a policy, etc. The bank/mortgage company does.

I hope the OCC and Fed get together and work out the PMI coverage issue soon.

2. A clarification re: Cathy H's comment on the credit disclosure and its wording about the requirement to buy: The reg seems to say the bank can't condition an extension of credit on the consumer's purchase from the bank or any of its affiliates/subs [14.30(b)(3)(i) and 14.40(b)(1)] -- not that we can't condition the loan on whether or not insurance is obtained at all.

3. Re John A's question: whether sale of credit insurance requires one disclosure or two: We read it that both the insurance disclosure [14.40(a)] and the credit disclosure [14.40(b)] are required. That (a) is required on all covered insurance sales of any type, and that (b) also is required if its credit related.

_________________________
Pat Patrick Wachovia Corp. Compliance 336-732-3394 pat.patrick@wachovia.com

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#433 - 02/12/01 03:58 PM Re: Final insurance rules
Pat Patrick Offline
New Poster
Joined: Dec 2000
Posts: 23
Winston-Salem, NC
De Vonne -- just curious: was the FRB person who gave you the PMI-is-covered answer in D.C. or at a local/district office? There's supposed to be an inter-agency team working on Q&A and being sure all are singing from the same hymnal. I'm at 336-732-3394 if you want to call.
_________________________
Pat Patrick Wachovia Corp. Compliance 336-732-3394 pat.patrick@wachovia.com

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#434 - 09/27/01 01:43 PM Re: Final insurance rules
Anonymous
Unregistered

Does the insurance disclosure apply in situations where collateral securing a loan is located in a flood area and the law requires sufficient flood insurance coverage?

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#435 - 09/27/01 01:49 PM Re: Final insurance rules
Angel Eyes Offline
Power Poster
Angel Eyes
Joined: May 2001
Posts: 4,599
Would your financial institution be selling the flood insurance "at the bank" or "on behalf of the bank"?

Yes, then it would be covered.

No, then you would not have to give any disclosures, you are mearly telling them that they must obtain the insurance in order to procede. This is no different than the auto or home owner's insurance you would require them to obtain.


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#436 - 09/27/01 03:31 PM Re: Final insurance rules
Rubaiyat Offline
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Joined: Jun 2001
Posts: 1,373
Lido Deck
RE: PMI - I recently spoke directly with Asa Chamberlayne, legal counsel for the OCC and one of the contact names listed on the Q&A cover letter, regarding PMI insurance. He said if the PMI is issued in the BANK'S name (i.e., the bank is the insured party), it does NOT require disclosures. Check one of your PMI policies to see if this is the case. This is generally how these policies are issued. If so, you are off the hook regarding insurance disclosures according to Mr. Chamberlayne.
_________________________
--A bad day at sea is better than a good day at work.

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