CFPB Having Second Thoughts About Restricting Credit Insurance Financing

by devteam May 9th, 2013 | Share

The Consumer Financial Protection Bureau (CFPB) is proposingrnto delay implementation of part of the LoanrnOriginator Compensation Requirements</bit issued in January.  The proposed delayrnaffects a prohibition on creditors financing credit insurance premiums which isrncurrently scheduled to go into effect on June 1, 2013.  CFPB is asking for public comment on the delayrnwhich it is proposing in order to address some interpretive issues that havernarisen.</p

The Final Rule on Loan Originator Compensation Requirementsrnimplemented Dodd-Frank Act amendments to the Truth in Lending Act (TILA)rnaddressing compensation, qualifications and registration of loan originators,rncompliance procedures for depository institutions, mandatory arbitration; andrnthe financing of single-premium credit insurance.  The last item prohibits creditors from financingrnpremiums or fees for certain credit insurance products in connection withrncertain consumer credit transactions secured by a dwelling. </p

CFPB set implementation dates for most of the several rulesrnissued in January 2013 for January 10, 2014 in order to allow the mortgagernindustry sufficient time to prepare for and comply with them.  However it identified certain provisions thatrnit believed did not present significant implementation burdens for the industryrnincluding the credit insurance provision and another concerning mandatoryrnarbitration clauses and waivers of certain consumer rights.   For these a date of June 1, 2013 was set.</p

The prohibition in the credit insurance provision applies torncredit life, credit disability, credit unemployment, credit property insurance,rnand other similar products but does not apply to credit insurance for which premiumsrnor fees are calculated and paid in full on a monthly basis or to credit unemploymentrninsurance for which premiums are reasonable, the creditor receives norncompensation, and the premiums are paid pursuant to a separate insurancerncontract and not to the creditor’s affiliate.  rn</p

CFPB received very few public comments either on thernproposed provision or on the earlier implementation date and those it didrnreceive from consumer groups concerned credit insurance premiums chargedrnperiodically while those from creditors concerned the general prohibition, notrnpremiums.   None were received from the credit insurancernindustry.  In the preamble to the FinalrnRule the Bureau provided some explanation about periodic premiums. </p

Since publication of the final rule, industry stakeholders<bhave expressed concern that the regulation left substantial uncertainty aboutrnwhether and under what circumstances premiums for certain credit insurancernproducts can be charged on a periodic basis. rnThese stakeholders have requested clarification and also expressedrnconcern about their ability to comply with the effective date ofrnimplementation. </p

The Bureau said that in response to these concerns it<bintends to publish a new proposal in June and seeks additional public commentrnregarding the applicability of the prohibition to transactions where creditrninsurance premiums are charged periodically and to propose a new effective daternthat will allow sufficient time after a new proposal is finalized for industryrnparticipants to comply.</p

If the rule goes into effect on June 1 as written the Bureaurnsaid it could create uncertainty that will result in a substantial compliancernburden for industry.  It contemplatesrndelaying the effective date only as long as necessary for any clarifications tornbe proposed, finalized, and implemented. rn</p

The current proposal seeks comment on a new effective daternfor any clarifications as part of the upcoming June proposal and on a finalrndate for implementation of the revised rule. rn The Bureaurnbelievesrnthat the temporary delay wouldrnbalance the need for consumers to receivernthe protections afforded by the rule asrnquickly as possible with industry’s need to make adjustmentsrnto comply with the provisionsrnof the rule.  Interested parties have 15 days to comment on the proposal after it is published in the Federal Register.</p<pThis proposal follows two that were issued byrnCFPB last month to clarify and correct some aspects of the 2013 Escrows FinalrnRule, the Ability-to-Repay and Qualified Mortgage Rule and the MortgagernServicing Rules.   The Bureau said it is issuingrnthese proposals as part of its ongoing commitment to facilitate implementationrnof the rules issued under the Dodd-Frank Act in January.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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