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Comp Blog

Does the Prohibition on Financing Credit Insuranse Premiums Apply to Loans Other Than Mortgage Loans?

By: Danielle Wright

CommentThursday - April 24, 2014

Question: I understand that we’re no longer allowed to finance credit insurance premiums on dwelling-secured loans. Does this prohibition apply to other types of loans, such as auto loans or unsecured credit?

A: No. Regulation Z Section 1026.36(i) - prohibition on financing credit insurance - generally prohibits a creditor from financing premiums or fees for credit insurance in connection with a closed-end consumer credit transaction secured by a dwelling, or an extension of open-end consumer credit secured by the consumer’s principal dwelling (i.e., HELOCs). The prohibition applies to credit life, credit disability, credit unemployment, credit property insurance, and other similar products, including debt cancellation and debt suspension contracts. Therefore, the prohibition does not apply to other types of loans such as automobile loans since they are generally not secured by a dwelling.

A creditor “finances” premiums or fees for credit insurance if it provides a consumer the right to defer payment of a credit insurance premium or fee owed by the consumer beyond the monthly period in which the premium or fee is due. The Commentary to sub-section 36(i) explains: “in the case of single-premium credit insurance, a creditor violates Section 1026.36(i) by adding the credit insurance premium or fee to the amount owed by the consumer at closing. In the case of monthly-pay credit insurance, a creditor violates Section 1026.36(i) if, upon the close of the monthly period in which the premium or fee is due, the creditor includes the premium or fee in the amount owed by the consumer.”

On the flip side, credit insurance premiums or fees that are “calculated and paid in full on a monthly basis” are permitted under the regulation.

For more information, see CUNA’s CompNotes titled “Reg. Z Prohibition on Financing Credit Insurance”


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