Credit Insurance Hot Topic Session

Credit Insurance Hot Topic Session

By Chris Hause

Chris Hause spoke about the effects on credit insurance that the emergence of Debt Cancellation products and the Home Owners Equity Protection Act(HOEPA) have created. Debt cancellation was authorized by the Gramm–Leach Bliley Act and is a banking product that is regulated by the OCC. Debt cancellation allows a bank to write into its loan documents a benefit that cancels the loan or waives payments upon occurrence of certain events. The events primarily covered are death, disability and unemployment. Other events may include such benefits as leave of absence and federal disaster relief. The emergence of these coverages had the first and greatest effect on credit insurance offered on credit cards. Installment debt is still primarily covered by credit insurance, but that is changing over time.

HOEPA has had a significant effect on credit insurance, but in a different way. HOEPA defined criteria by which a home–secured loan would be considered a "high cost" loan. Most lenders choose to avoid that label. The criteria were such that single premium credit insurance could not be added and many lenders simply stopped writing credit insurance at all. Others chose to write Monthly Outstanding Balance. As a result, there has been a significant decrease in net premiums written.

Exact measurement of debt protection volume is difficult, since financial institutions generally do not disclose or publish their fee income by source. It would appear that while the total "pie" of debt protection has increased (when credit insurance and debt protection are added together), credit insurance is a smaller piece of that "pie".