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Birnbaum: TILA Should Apply to Credit Insurance

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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.

Birnbaum notes in his letter that bank regulators believe they should have jurisdiction over credit insurance products because the products are banking products sold by banks.

Credit insurers sell a credit insurance group policy to the lender, who then sells the credit insurance to the borrower on behalf of the credit insurer and issues a certificate of insurance under the group policy to the borrower, Birnbaum says, citing the arguments of bank regulators.

“The entities that sell credit insurance on behalf of the credit insurers are more generally called producers and include banks, credit unions, finance companies, automobile dealers, department stores, furniture stores and jewelry stores,” Birnbaum says.

The “proposed disclosures are an improvement over current disclosures required by the Truth In Lending Act, state insurance laws and federal regulations regarding debt cancellation contracts and debt suspension agreements,” Birnbaum says.


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