[timob1973]

Couple of questions regarding VSI and the new integrated disclosure rules.

1. Is this a prepaid finance charge?

2. If we tell the borrower that they can shop VSI, do we have to include providers on our shop list?

Your help is appreciated!!!!

[rcooper]

Since you are asking about VSI I am assuming this is a car loan, or at least secured by a vehicle and not real property. If this is the case you will look to 1026.18 for the disclosure requirements.

In order to determine if VSI is a finance charge look at 1026.4(b)(8), which states that it is a finance charge unless certain criteria are met (1026.4(d)(2).

1026.4(b) states:
Examples of finance charges. The finance charge includes the following types of charges, except for charges specifically excluded by paragraphs (c) through (e) of this section:
…(8) Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction.

1026.4(d)(2) states:
2) Property insurance premiums. Premiums for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, including single interest insurance if the insurer waives all right of subrogation against the consumer, may be excluded from the finance charge if the following conditions are met:

(i) The insurance coverage may be obtained from a person of the consumer’s choice, and this fact is disclosed. (A creditor may reserve the right to refuse to accept, for reasonable cause, an insurer offered by the consumer.)

(ii) If the coverage is obtained from or through the creditor, the premium for the initial term of insurance coverage shall be disclosed. If the term of insurance is less than the term of the transaction, the term of insurance shall also be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under §1026.17(g), and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage.

[timob1973]

Robin,

We are dealing with a mobile home and land. We allow the borrower to shop for VSI so I’m guessing we will need to add them the provider shopping list.

[rcooper]

Ok – that clears things up. Yes, I agree if you allow the customer to shop the provider must be added to the list.

[kmeade]

I understood that VSI on mobile homes that are the primary residence was considered credit insurance and could not be financed. Is that correct?

[timob1973]

We don’t finance the VSI. We collect it in cash due to the credit insurance issue.

[rcooper]

I agree that VSI would be considered credit insurance and shouldn’t be financed in connection with a consumer credit transaction secured by a dwelling. Good point kmeade. Sounds like timob1973 has it covered.

[elebra]

Can you direct me to the part of the regulation that says credit insurance cannot be financed, please.

[kmeade]

1026.36(i) Prohibition on financing credit insurance. (1) A creditor may not finance, directly or indirectly, any premiums or fees for credit insurance in connection with a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the consumer’s principal dwelling). This prohibition does not apply to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis.

Hope this helps!

[Author]

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