Credit Insurance Regs: To Be Continued - This Summer

In September 2010, the Fed proposed several changes to Regulation Z.

If adopted as written, the credit insurance provision would strongly encourage lenders to provide standardized notices warning consumers considering credit life insurance, credit disability insurance and other credit insurance products that are often more expensive than traditional insurance products, and that consumers who have enough savings or traditional insurance products might not need credit insurance.

The proposed Regulation Z changes that generated the most controversy dealt mainly with mortgage lending, including combining disclosures under TILA and the Real Estate Settlement Procedures Act (RESPA), Fed officials say.

The proposed changes generated 5,000 comment letters, and the commenters expressed "divergent views on many substantive and technical issues," Fed officials say.

"Although there are specific provisions of these Fed proposals that would not be affected by the CFPB's development of joint TILA-RESPA disclosures, adopting those portions of the Fed's proposals in a piecemeal fashion would be of limited benefit, and the issuance of multiple rules with different implementation periods would create compliance difficulties," Fed officials say.

Congress included the provision creating the CFPB in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB is supposed to take over the consumer protection responsibilities now handled by federal bank regulatory agencies.

REACTIONS

Scott Cipinko, executive vice president of the Consumer Credit Industry Association, Chicago, says his group will follow the efforts of the CFPB in connection with these and other rules and "continue our efforts to ensure that any rules adopted are fair and effective and allow the consumer to make an informed choice while preserving the availability of products to protect the consumer against unexpected loss."

The proposed Regulation Z rules were not withdrawn but the Fed will not finalize or adopt the draft rules, Cipinko says.

"It is important recognize that these issues are not off the table," Cipinko says. "It is expected that the matters covered by these rules will be referred to the CFPB. The CFPB can

take over those pending proposals and can finalize, adopt, rescind or start the process anew."

The "CCIA was very concerned over the tone of the proposed disclosures, the way the [Fed] had changed its fact finding process and many other issues in connection with the proposed regulation," Cipinko says.

The Fed "received critical comments from all sides of the political spectrum," Cipinko says.

The American Council of Life Insurers (ACLI), Washington, and the American Insurance Association (AIA), Washington, raised legal and procedural concerns about the Fed credit insurance disclosures proposal, contending that the proposed disclosures would "present credit insurance products in a negative light."

The ACLI and the AIA have challenged the Fed's authority to mandate consumer protection disclosures on products already overseen by state insurance regulators.

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, also has welcomed the news that the CFPB will be handling the Regulation Z disclosure rules update.

The Fed "recognized that the substance of these proposed regulations is precisely the consumer protection areas for which the CFPB was created," Birnbaum says.

Birnbaum has supported the Fed proposal to toughen credit insurance disclosure requirements.

"State insurance departments have generally done a poor job of protecting consumers from abuses in credit insurance markets," Birnbaum says. "State insurance regulators have also failed to take action against unfair sales and abusive credit insurance products."