H. B. 4285
(By Delegates Azinger, Thompson, H. White,
L. White, Beane and Gillespie)
[Introduced February 6, 1998; referred to the
Committee on Banking and Insurance.]
A BILL to amend and reenact section one hundred nine, article
three, chapter forty-six-a of the code of West Virginia, one
thousand nine hundred thirty-one, as amended; and to further
amend said article by adding thereto a new section,
designated section one hundred nine-a, all relating to
allowing a secured lender to procure insurance covering
collateral, under the consumer protection act; and providing
related conditions and procedures.
Be it enacted by the Legislature of West Virginia:
That section one hundred nine, article three, chapter
forty-six-a of the code of West Virginia, one thousand nine
hundred thirty-one, as amended, be amended and reenacted; and
that said article be further amended by adding thereto a new
section, designated section one hundred nine-a, all to read as
follows:
ARTICLE 3. FINANCE CHARGES AND RELATED PROVISIONS.
§46A-3-109. Additional charges; credit life or health
insurance; notice of cancellation; when refund required; obligations of creditor and insurer;
civil penalty; rules relating to insurance.
(a) In addition to the sales finance charge or loan finance
charge permitted by this chapter, a creditor may contract for and
receive the following additional charges in connection with a
consumer credit sale or a consumer loan:
(1) Official fees and taxes;
(2) Charges for insurance as described in subsection (b) of
this section: Provided,
That nothing contained in this section
with respect to insurance shall be construed as in any way
limiting limits the power and jurisdiction of the insurance
commissioner of this state in the premises;
(3) Annual charges, payable in advance, for the privilege of
using a lender credit card or similar arrangement which entitles
the user to purchase goods or services from at least one hundred
persons not related to the issuer of the lender credit card or
similar arrangement, under an arrangement pursuant to which the
debts resulting from the purchases are payable to the issuer;
(4) Charges for other benefits, including insurance,
conferred on the consumer, if the benefits are of value to him or
her and if the charges are reasonable in relation to the
benefits, are of a type which is not for credit, and are excluded
as permissible additional charges from the sales finance charge
or loan finance charge by rule adopted by the commissioner:
Provided,
That as to insurance, the policy as distinguished from
a certificate of coverage thereunder must may only be issued by
an individual licensed under the laws of this state to sell such the insurance and the determination of whether the charges
therefor are reasonable in relation to the benefits shall be
determined by the insurance commissioner of this state;
(5) Reasonable closing costs with respect to a debt secured
by an interest in land; and
(6) Documentary charge or any other similar charge for
documentary services in relation to securing a title, so long as
said charge is applied equally to cash customers and credit
customers alike and so long as such documentary charge does not
exceed fifty dollars.
(b) A creditor may take, obtain or provide reasonable
insurance on the life and earning capacity of any consumer
obligated on the consumer credit sale or consumer loan,
reasonable insurance on any real or personal property offered as
security subject to the provisions of this subsection and section
one hundred nine-a of this article, and vendor's or creditor's
single interest insurance with respect to which the insurer has
no right of subrogation. Only one policy of life insurance
and/or one policy of health and accident insurance and/or one
policy of accident insurance and/or one policy of loss of income
insurance on any one consumer may be in force with respect to any
one contract or agreement at any one time, but one policy may
cover both a consumer and his or her spouse:
(1) The amount, terms and conditions of property insurance
shall have a reasonable relation to the existing hazards or risk
of loss, damage or destruction and be reasonable in relation to
the character and value of the property insured or to be insured; and the term of such the insurance shall be reasonable in
relation to the terms of credit: Provided,
That nothing shall be
deemed to may prohibit the consumer from obtaining, at his or her
option, greater coverages for longer periods of time if he or she
so desires;
(2) Life insurance shall be in an initial amount not to
exceed the total amount repayable under the consumer credit
agreement, and where a consumer credit sale or consumer loan is
repayable in installments, such insurance shall may at no time
exceed the scheduled or actual amount of unpaid indebtedness,
whichever is greater. Life insurance authorized by this
subdivision shall provide that the benefits shall be paid to the
creditor to reduce or extinguish the unpaid indebtedness:
Provided,
That if a separate charge is made for such the
insurance and the amount of insurance exceeds the unpaid
indebtedness, where not prohibited, then such the excess shall be
is payable to the estate of the consumer. The initial term of
such the life insurance in connection with a consumer credit
sale, other than a sale pursuant to a revolving charge account,
or in connection with a consumer loan, other than a loan pursuant
to a revolving loan account, shall may not exceed the scheduled
term of the consumer credit agreement by more than fifteen days.
The aggregate amount of periodic benefits payable by credit
accident and health insurance in the event of disability, as
defined in the policy, and loss of income insurance in the event
of involuntary loss of employment, as defined in the policy,
shall may not exceed the unpaid amount of such indebtedness; periodic benefits payable in connection with a consumer credit
sale pursuant to a revolving charge account or of a consumer loan
pursuant to a revolving loan account may be based upon the
authorized credit limit;
(3) When the insurance is obtained or provided by or through
a creditor, the creditor may collect from the consumer or include
as part of the cash price of a consumer credit sale or as part of
the principal of a consumer loan, or deduct from the proceeds of
any consumer loan the premium, or in the case of group insurance,
the identifiable charge. The premium or identifiable charge for
such the insurance required or obtained by a creditor may equal,
but shall may not exceed the premium rate filed by the insurer
with the insurance commissioner. In any case, when the creditor
collects the entire premium for such insurance in advance, such
the premium shall be remitted by such the creditor to the insurer
or the insurance agent, as specified by the insurer, within ten
days from or after the end of the month in which such the
collection was made;
(4) With respect to insurance against loss of or damage to
property, or against liability, the creditor shall furnish a
clear and specific statement in writing to the debtor, setting
forth the cost of the insurance if obtained from or through the
creditor, and stating that the debtor may choose the person
through whom the insurance is to be obtained;
(5) With respect to consumer credit insurance providing
life, accident, health or loss of income coverage, no creditor
shall may require a consumer to purchase such the insurance or to purchase such the insurance from such the creditor or any
particular agent, broker or insurance company as a condition
precedent to extending credit to or on behalf of such consumer;
(6) When a consumer credit sale or consumer loan,
refinancing or consolidation is paid in full, the creditor
receiving such the payment shall inform the debtor of the
cancellation of any consumer credit insurance providing life,
accident, health or loss of income coverage and advise the debtor
of the application of any unearned premiums to the loan balance.
Notices required by this subdivision shall be made in the
following manner:
(A) If such the insurance was not sold or provided by the
creditor, the creditor receiving the payment shall notify the
debtor that he or she may have the right to receive a refund of
unearned premiums from any other seller or provider of such the
insurance, and advise the debtor of his or her obligation to
notify any other insurer of the payment of the loan balance and
the cancellation of the consumer credit insurance, and request a
refund or credit of unearned premiums, if applicable. Such
notice shall be sent on a form as prescribed by the insurance
commissioner as provided in chapter twenty-nine-a of this code
and shall contain the name and address of the seller and the
insurer; or
(B) If the creditor was the seller or provider of the
consumer credit insurance, the creditor shall:
(i) Notify the insurer or shall cause the insurer to be
notified of the cancellation of such insurance; and
(ii) Notify the debtor of the cancellation of such the
insurance and of the application of any unearned premiums to the
loan balance, which such notice may be on a form consistent with
the general course of business of the creditor;
(7) Upon receipt by the insurer of notification of the
cancellation of consumer credit insurance, the insurer shall
cancel such the insurance effective no later than thirty days
from the date of receipt of such the notice. Within forty-five
days following the date of notification of cancellation of such
the insurance, the insurer shall pay any refund of unearned
premiums to the debtor-insurer or such other person as directed
by the debtor-insurer; and
(8) An insurer, seller or creditor who fails to refund any
unused insurance premium or provide the proper notification of
payoff shall be is liable for civil damages up to three times the
amount of the unused premium as well as other remedies as
provided for by section one hundred nine, article seven of this
chapter.
(c) The insurance commissioner of this state shall
promulgate legislative rules in accordance with the provisions of
chapter twenty-nine-a of this code to implement the provisions of
this article relating to insurance, and the authority of the
insurance commissioner to promulgate the same shall be rules is
exclusive notwithstanding any other provisions of this code to
the contrary.
§46A-3-109a. Collateral protection insurance.
(a) As used in this section:
(1) "Collateral" means any or all property pledged to secure
payment, repayment or performance under a credit agreement,
whether personal property, real property, fixtures, inventory,
receivables, rights, privileges or otherwise.
(2) (A) "Collateral protection insurance" means insurance
coverage that: (i) Is purchased unilaterally by a creditor
subsequent to the date of a consumer credit agreement; (ii)
provides monetary protection against loss of or damage to the
collateral or against liability arising out of the ownership or
use of the collateral; and (iii) is purchased according to the
terms of a credit agreement as a result of a consumer's failure
to provide evidence of insurance or failure to maintain adequate
insurance covering the collateral, with the costs of the
collateral protection insurance, including interest and any other
charges imposed by the creditor in connection with the placement
of the collateral protection insurance, payable by the consumer.
Collateral protection insurance includes insurance coverage that
is purchased to protect only the interest of the creditor and
insurance coverage that is purchased to protect both the interest
of the creditor and some or all of the interest of the consumer.
The term of a collateral protection insurance policy may, but
need not, extend to the full term of the credit transaction.
(B) Collateral protection insurance does not include insurance
coverage that is: (i) Purchased by the creditor for which the
consumer is not charged; (ii) purchased at the inception of a
credit transaction to which the consumer is a party or agrees,
whether or not the costs are included in any payment plan under the credit transaction; (iii) purchased by the creditor following
foreclosure, repossession, or a similar event wherein the
creditor gains possession or control over the collateral; (iv)
maintained by the creditor for the protection of any or all
collateral which may come into the possession or control of the
creditor through foreclosure, repossession or a similar event;
(v) credit insurance, mortgage protection insurance, insurance
issued to cover the life or health of the consumer or any other
insurance maintained to cover the inability or failure of the
consumer to make payment under the credit agreement; (vi) title
insurance; or (vii) flood insurance required to be placed by
creditors by 42 U.S.C. §4012(a), as amended, pursuant to the
National Flood Insurance Reform Act of 1994.
(3)"Credit agreement" means the written document or documents
that set forth the terms of the credit transaction.
(4)"Credit transaction" means any consumer credit transaction,
the terms of which require the payment or repayment of money,
goods, services, property, rights or privileges, which is to be
made on one or more future dates, where the obligation is secured
by collateral.
(b) A creditor may place collateral protection insurance if
the following conditions are met:
(1) The consumer has entered into a credit transaction with
the creditor;
(2) The credit transaction has been reduced to a credit
agreement and the credit agreement requires the consumer to
maintain insurance on the collateral; and
(3) A notice substantially similar to the following has been
included in the credit agreement or on a separate document
provided to the consumer and to any cosigner, guarantor or other
person liable with the consumer for the obligation, at the time
the credit agreement is entered:
"Unless you provide us with evidence of the insurance coverage
required by your agreement with us, we may purchase insurance at
your expense to protect our interests in your collateral. This
insurance may, but need not, protect your interests. The
coverage that we purchase may not pay any claim that you make or
any claim that is made against you in connection with the
collateral. You may later cancel any insurance purchased by us,
but only after providing us with evidence that you have obtained
insurance as required by our agreement. If we purchase insurance
for the collateral, you will be responsible for the costs of that
insurance, including interest and any other charges we may impose
in connection with the placement of the insurance, until the
effective date of the cancellation or expiration of the
insurance. The costs of the insurance may be added to your total
outstanding balance or obligation. The costs of the insurance
may be more than the cost of insurance you may be able to obtain
on your own."
(c) (1) Within thirty calendar days following the placement of
collateral protection insurance, the creditor shall mail to the
consumer and to any cosigner, guarantor or other person liable
with the consumer for the obligation, at the last known address
of the person, a notice entitled "Notice of Placement of Insurance" in a form substantially similar to the following:
"NOTICE OF PLACEMENT OF INSURANCE
Your credit agreement with us requires you to maintain
adequate insurance on your collateral until you pay off your
loan. You have not given us proof that you have adequate
insurance on your collateral. Under the terms of your credit
agreement, we have purchased insurance at your expense to protect
our interests in your collateral.
The insurance we purchased will pay claims made by us as the
creditor. The insurance we purchased may not pay any claims made
by you or against you in connection with your collateral.
You are responsible for the costs of this insurance, including
interest and any other charges we may impose in connection with
the purchase of this insurance. The costs of this insurance may
be more than insurance you can buy on your own.
You still may obtain insurance on your own choosing on the
collateral. If you provide us with proof that you have obtained
adequate insurance on your collateral, we will cancel the
insurance that we purchased and refund or credit any unearned
premiums to you.
If, within thirty days after the date this notice was sent to
you, you provide us with proof that you had adequate insurance on
your collateral as of the date we also purchased insurance and
that you continue to have the insurance that you purchased
yourself, we will cancel the insurance that we purchased without
charging you any costs, interest or other charges in connection
with the insurance that we purchased."
(2) The terms for repayment of the costs of the collateral
protection insurance, which include interest and any other
charges imposed by the creditor in connection with the placement
of the collateral protection insurance, shall include one or more
of the following:
(A) Full payment within thirty days after the date of the
notice of placement of insurance;
(B) A final balloon payment within thirty days after the last
scheduled payment required by the credit agreement; or
(C) Full amortization over the term of the credit transaction,
the term of the collateral protection insurance policy, or the
term for which amortization is used by the creditor.
(d) If any form of amortization is used by the creditor for
the costs of collateral protection insurance and a coupon book
was sent to the consumer at the inception of the credit
transaction, the creditor shall send to the consumer either:
(1) Reprinted coupon book with revised calculations of the
consumer's payments that includes the amortized costs of the
collateral protection insurance; or
(2) Supplemental coupon book with calculations of the
consumer's additional payments based upon the amortized costs of
the collateral protection insurance, for use by the consumer in
addition to the original coupon book.
(e) A consumer may at any time cancel the collateral
protection insurance by providing proper evidence to the creditor
that the consumer has obtained insurance as required by the
credit agreement. If, within thirty days after notice is sent pursuant to subdivision (1), subsection (c) of this section, a
consumer provides the creditor with proper evidence that the
consumer had insurance on the collateral as required by the
credit agreement on the date the creditor purchased insurance and
that the consumer continues to have insurance on the collateral
as required by the credit agreement, the creditor shall cancel
the insurance that it purchased and may not charge the consumer
any costs, interest or other charges in connection with the
insurance.
(f) Upon cancellation or expiration of collateral protection
insurance, the amount of unearned premiums, if any, as calculated
in accordance with the policy, shall be refunded to the consumer.
A refund of unearned premiums may be credited to the consumer's
obligation under the credit agreement or distributed directly to
the consumer by check or other means.
(g) Collateral protection insurance may be placed with any
insurance carrier selected by the creditor that is licensed to
underwrite the insurance by the division of insurance. The
insurance shall be evidenced by an individual policy or a
certificate of insurance.
(h) A creditor that places collateral protection insurance in
substantial compliance with the terms of this section is not
directly or indirectly liable in any manner to a consumer, co- signor, guarantor or any other person, in connection with the
placement of the collateral protection insurance. Notices and
coupon books required to be mailed to a consumer under this
section are not required to be mailed to any person other than to the consumer and shall be mailed by United States mail, first
class, postage prepaid, to the consumer's last known address on
file with the creditor.
(i) This section does not impose a fiduciary relationship
between the creditor and the consumer. Placement of collateral
protection insurance is for the sole purpose of protecting the
interest of the creditor when the consumer fails to insure
collateral as required by the credit agreement.
(j) A creditor is not, by virtue of this section, required to
purchase collateral protection insurance or to otherwise insure
collateral. A creditor is not, by virtue of this section, liable
to a consumer or to any other person for not purchasing
collateral protection insurance, as a result of the amount or
level of coverage of collateral protection insurance purchased by
the creditor, or because the creditor purchased collateral
protection insurance that protects only the interests of the
creditor or less than all of the interests of the consumer. This
section does not create a cause of action for damages on behalf
of the consumer or any other person in connection with the
placement of collateral protection insurance.
(k) The obligations and rights of the creditor and the
consumer with respect to the collateral, as provided by the
uniform commercial code, chapter forty-six of this code, are not
affected by this section.
(l) Substantial compliance with the provisions of this section
is mandatory for the placement of collateral protection insurance
in this state by a creditor pursuant to a credit agreement entered into on or after the first day of July, one thousand nine
hundred ninety-eight. No provision of this section may be held
or applied against a creditor in connection with collateral
protection insurance placed prior to the first day of July, one
thousand nine hundred ninety-eight. A creditor that places
collateral protection insurance pursuant to a credit agreement
entered into prior to the first day of July, one thousand nine
hundred ninety-eight, has available to it all of the rights
provided by this section if the creditor is in substantial
compliance with the provisions of this section, other than
subdivision (3) of subsection (b).
NOTE: The purpose of this bill is to create a clear procedure
pursuant to which creditors may procure insurance to cover
collateral pledged in connection with a consumer loan in
circumstances where the consumer permits the insurance to lapse.
Procedures are provided that require notices to consumers at the
time of the loan, and at the time insurance is placed. The bill
gives the consumer opportunities to procure insurance of their
choice and receive a rebate of any unearned premium on the
insurance procured by the creditor. A creditor in substantial
compliance is not liable for its placement of the insurance, nor
is an obligation to procure insurance created.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that
would be added.
§46A-3-109a is new; therefore, strike-throughs and
underscoring have been omitted.
BANKING AND INSURANCE COMMITTEE AMENDMENT
On page twelve, section one hundred nine-a, following line
three, by adding a new subdivision, designated subdivision (5),
to read as follows:
"(5) 'Creditor' shall mean, for purposes of this section
only, an institution, the deposits of which are insured by the
federal deposit insurance agency, the national credit union share
insurance fund, or a subsidiary of such an institution, or a
subsidiary of a holding company owning such an institution, and
this section applies and is available only to such creditors."
And,
On page eighteen, section one hundred nine-a, line twenty-one,
by striking out the word "ninety-eight" and inserting in lieu
thereof the word "ninety-nine".