WASHINGTON (10/9/13)--Credit unions should begin planning a way to account for credit insurance premiums and debt protection fees that is consistent with pending Consumer Financial Protection Bureau regulatory changes, CUNA Mutual Group Lead Attorney David Tomar wrote in a recent Credit Union National Association CompBlog post.
The CFPB's loan originator compensation rule adopted the Dodd-Frank Act's prohibition on creditors financing credit insurance premiums in connection with certain mortgage transactions. The final rule makes clear that credit insurance premiums are "financed" by a creditor when the creditor allows the consumer to defer payment of the premium past the month in which it is due. The rule explains how it applies to "level" premiums, when the monthly premium is the same each month rather than decreasing along with the loan balance.
Tomar said the rule is effective for loans whose applications are taken on or after Jan. 10, 2014. The scope of the rule still applies only to closed-end loans secured by any dwelling or open-end loans secured by a principal dwelling, he added.
As noted in Tomar's blog post, advocacy by CUNA, credit unions and CUNA Mutual resulted in the CFPB determining that adding a premium to the outstanding loan is not "financing" if the premium is posted and paid in the same monthly period, even if some interest accrues. "That's the most common scenario and a huge relief for credit unions because credit unions do not need to make changes by Jan. 10, 2014," Tomar said.
The bureau may also revisit rules regarding underlying credit insurance or debt cancellation product agreements, and charging interest on credit insurance premiums. Credit unions may need to revise their practices in the near future to comply with CFPB changes to these rules and regulations, Tomar warned.
For the full CompBlog post, use the resource link.