Birnbaum: TILA Should Apply to Credit Insurance

WASHINGTON BUREAU — Birny Birnbaum is welcoming Federal Reserve Board efforts to apply Truth In Lending Act (TILA) disclosure requirements to credit insurance.

“State insurance departments have generally done a poor job of protecting consumers from abuses in credit insurance markets,” Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, writes in a comment letter. “State insurance regulators have also failed to take action against unfair sales and abusive credit insurance products.”

The Fed is using the term “credit protection products” to refer to a wide variety of credit insurance products — including credit life, credit disability and credit family leave protection – that are sold in connection with a consumer loan and regulated by the states as insurance products.

In a proposal to create expanded Regulation Z disclosure requirements, the Fed says it wants lenders to include notices warning consumers that credit insurance products are often more expensive than other types of insurance products, and that consumers who have enough savings or traditional insurance might not need the products.

The American Council of Life Insurance, Washington, and the American Insurance Association, Washington, have argued in a joint letter that the proposed regulations would conflict with the federal law giving states jurisdiction over insurance, and insurance company executives have argued that the Fed should not require sellers of credit insurance products to give consumers simplistic warnings presenting the products in a negative light.