[Anonymous]

When we force-place insurance, we add it to the principal balance of the loan (per our agreement with the customer) and charge interest. If the customer comes back and provides proof of coverage later and the premium must be refunded, are you refunding interest on the premium as well?

Topic

[rcooper]

IMO, I think it would depend on the situation. If you have forced placed because the customer didn’t obtain insurance as agreed/required, you have to purchase it and, as a result, add it to the loan amount (per your agreement); if the customer then obtains insurance and you cancel the policy you purchased you wouldn’t need to refund interest for the period that the customer failed to provide insurance. However, if after the customer provides you with a policy and you don’t promptly credit their account with the refund and continue to charge interest then you should refund it in that situation. Or if insurance was force-placed in error, then interest should be refunded. Be mindful of UDAAP – you don’t was a process in place that consistently charges customers for something that isn’t needed. Also make sure you’re familiar with the new force place requirements in RESPA under 12 CFR 1024.37, for hazard insurance, effective January 10, 2014.

[Anonymous]

Thank you for your helpful response. We are developing these procedures in anticipation of the upcoming January 2014 changes in force-placement of hazard insurance.

[Author]

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