The rules require disclosure at the time of "application for credit in connection with which an insurance product or annuity is solicited, offered, or sold".

What if we accept an application for credit, lets say for a vehicle loan, without any mention of credit life by us or the consumer, we approve the application, and then at closing or shortly before, the consumer requests credit life?

We obviously cannot give the "at time of application" disclosure at the proper time, as that time has come and gone.

I realize I may be stretching things a bit far, but am interested in your ideas.

American Bank Systems contacted one of the federal bank regulatory agencies about this issue. They asked, "What about a situation where the bank does not solicit or offer credit life, but has the capacity to sell it, and in the course of the transaction the customer asks about it and expresses a desire to purchase it? If the bank has the capacity to sell, are they required to give out the anti-coercion disclosure at the time of application each time? The regulators told ABS that in that situation, since the bank was not soliciting or offering the insurance (and didn't plan to sell it until the customer initiated the discussion), that it would be sufficient to give the disclosure to the customer at the time they ask about the possibility of procuring credit life.

That seems like a very reasonable approach to me.

What about is credit life is offerred to some individuals and not others. There are some customers that the loan officers know do not need or want it. Do you still have to give it out on this basis just because it might or might not be used? And what about those applicants that come into a loan secretary and ask for an application to complete? Will the secretaries be required to give the disclosures at that time? They might not know if the loan officer will or will not offer credit life.

In a situation where the solicitation or offer is made on a case by case basis, I think the safest course of action would be to give the anti-coercion disclosure across the board to all applicants at the time of application.

If you have a loan secretary taking applications and no decision is made about whether to offer insurance until the application falls into the hands of a loan officer, I don't think the scenario that American Bank Systems talked to the regulators about would stretch far enough. What they talked to regulators about was an instance where the lender was definitely not offering or soliciting insurance business, but simply sold it in response to a request.

Yes. FDIC put out a press release this morning -- unfortunately it was several hours after our daily Compliance Briefings had gone out. It states, in pertinent part:

The federal banking regulatory agencies today approved a joint
rulemaking that extends the effective date of consumer protection rules for
the sale of insurance products by depository institutions on their premises,
or on their behalf. The new effective date will be October 1, 2001, rather
than the original effective date of April 1, 2001. No other provisions of
the rules have changed.

Mary Beth, in regards to my earlier post above, let me stretch this thing a bit farther.

Under the scenario above, we accept the application, we approve the application, and then prior to closing, the consumer inquires as to credit life.

My new twist is thus: Do we yet have to give the anti-coercion disclosure if we have already approved the loan application. Since we have already approved the loan, we cannot (in my opinion) exert coercion upon the consumer to "either obtain credit life from us or we aren't going to approve your loan request".

Let me know your thoughts.

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
either:
(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.