Senate Bill No. 84
(By Senator Tucker)
[Introduced February 13, 2013; referred to the Committee on
Banking and Insurance; and then to the Committee on the
A BILL to amend and reenact §46A-3-109a of the Code of West
Virginia, 1931, as amended, relating to collateral protection
Be it enacted by the Legislature of West Virginia:
That §46A-3-109a of the Code of West Virginia, 1931, as
amended, be amended and reenacted to read as follows:
ARTICLE 3. FINANCE CHARGES AND RELATED PROVISIONS.
§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
(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.
(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.
(b) A creditor may place collateral protection insurance if
the following conditions are met:
(1) The consumer has entered into a credit transaction with
(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
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
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
(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,
cosignor, 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
(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
(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 July 1, 1999. No provision of this section may be
held or applied against a creditor in connection with collateral
protection insurance placed prior to July 1, 1998. A creditor that
places collateral protection insurance pursuant to a credit
agreement entered into prior to July 1, 1998, 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).
(m) Notwithstanding any provision in this section to the
contrary, if a lack of insurance upon collateral in which a lender
has a security interest and is a named additional insured on such
insurance policy is or will result in a lapse of an existing policy
for nonpayment of renewal premium, such lender shall not cause
forced placed insurance to be added to protect the lender's
security interest but in such event lender shall advance such sums
as are necessary to prevent a lapse in such existing policy and all
sums advanced shall be deemed as additional principal subject to
the terms of the promissory note or other instrument creating the obligation and secured by lender's lien document.
NOTE: The purpose of this bill is to make provision under
certain circumstances for a lender who has a security interest to
prevent a lapse in a collateral insurance policy.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would