That's a really good question. Here's my stab at an answer.
What the regulation says is that a covered person may not engage in any practice that would lead a consumer to believe that an
extension of credit, in violation of the tying provisions, is conditional upon
(1) The purchase of an insurance product or annuity from the bank or any of its affiliates; or
(2) An agreement by the consumer not to obtain, or a prohibition on the consumer from obtaining, an insurance product or annuity from an unaffiliated entity.
On the one hand, it could certainly be argued that once the extension of credit is made, insurance obtained after the fact would obviously not affect the decision of whether to extend credit or not.
On the other hand, unscrupulous persons could simply delay the writing of the insurance until after the extension of credit was made to give the appearance there could not have been any coercion involved with the sale of insurance.
And I suppose it could also be argued that if the note has a demand clause a borrower could fear the loan could be called if insurance isn't purchased.
Taking it to the next level, however, let's say that the insurance is purchased 2 years into a 30 year mortgage loan. I think it would be hard for someone to assert the customer was coerced into purchasing the insurance.
I hope the regulators will use some of the time between now and the October 1 effective date to clarify some of these issues.