Insurance Disclosures

One of our branches currently in a situation with a car dealership and I need some expert advice. Currently the branch banks situation is as follows:

- The auto dealer hands out the application.
- The branch bank gives auto dealer the parameters for rates/terms.
- The auto dealer sets the rate.
- The branch bank completes the underwriting.
- The branch bank draws up the note or denial.

Is the car dealership required to deliver the insurance disclosures to their customers?

The branch President feels that the bank is "buying the paper" from the car dealer and we as the bank don't need to be concerned about the disclosures. However there have been situations where the branch bank has sold credit insurance to these borrowers.
What is the concensus?

Who sells the insurance? The Bank?

Yes, the bank is selling the insurance, but is not the initial contact with the customer.

Betsy, I disagree with your bank President about "buying Paper". It sounds like you are making a direct loan to the consumer. The question would be who the creditor is. If you are typing the contract and closing in the bank's name, the bank would be the creditor. Likewise, if the bank is selling the insurance they need to give out the disclosures.
You may also want to know if the dealer is considered to be refering business to you. We had a similar arangement years ago. You need to make sure the FTC notice (RE: Claims and Defenses for Purchase Money Loans) is on the back of those contracts if that is the arrangement.

Could this also be like when you have an application in your lobby to offer credit cards, where the credit card application is mailed to a separate company who underwrites and issues the card? We do not see the application after the customer completes it, but we made sure that the credit card company updated their applications to comply with the disclosure requirements by having the disclosure as part of the actual application. Could this be applied here as well, by having the dealership use applications that either have the disclosure as part of the form or attach a separate doc?

Betsy, you say your shop is selling the insurance, but not during the initial contact with the customer. If you are selling insurance after underwriting the loan and communicating the decision to the customer, then you do not need to give the insurance disclosures per the Insurance Sales Q & A (Question 2a). If that's the case, then the trick is going to be documenting that in fact you did not solicit the insurance prior to communicating the decision. And you still have the problem of how to control the dealer.

I also agree with kcarter, these do not sound like indirect deals to me. If these are not indirect and the dealer is the one selling the insurance, he or she may be deemed to be acting "on behalf of" your bank which would also trigger the disclosures, although it would depend on the facts. If the dealer sells the insurance product, does he or she get the commission rather than your bank?

Sounds like you have some work to do. Good luck.

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The opinions expressed are mine and not those of my employer