As our readers will recall, the CFPB proposed back in January 2013 to limit the ability of mortgage lenders to finance credit insurance premiums. These prohibitions were to go into effect on June 1, 2013, several months before the required implementation date of most regulations issued at that time. On May 8, 2013, however, the CFPB switched course, proposing to delay implementation of the rule while the CFPB decides whether to make the rule applicable to transactions other than those in which a lump-sum premium is added to the loan amount at closing. Back in January, the CFPB issued a number of final rules concerning mortgage lending, in accordance with requirements of the Dodd-Frank Act, including Loan Originator Compensation Requirements under the Truth in Lending Act (Regulation Z) (the "LO Compensation Rule"). The LO Compensation Rule deals not only with compensation, but also with loan originator qualifications and registration, as well as compliance procedures for banks, prohibitions on mandatory arbitration, and (relevant here), prohibitions on the financing of single-premium credit insurance.
Covered products include credit life, credit disability, credit unemployment, credit property insurance, and the like. (The prohibition does not extend to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis or to credit unemployment insurance for which the premiums are reasonable, the creditor receives no compensation, and the premiums are paid pursuant to a separate insurance contract and are not paid to the creditor's affiliate.) While most of the LOC Compensation Rule provisions were to take effect January 10, 2014, the credit insurance premium prohibition was to take effect June 1. Not any more. According to the CFPB, concern has been expressed that the regulation text and preamble leave substantial uncertainty about whether, and under what circumstances, premiums for certain credit insurance products can be charged on a periodic basis in connection with a covered consumer credit transaction secured by a dwelling. By this action, the CFPB seeks to delay implementation, and likewise seeks comment even as to what the new implementation date should be. But don't expect this delay to result in a reconsideration of the prohibition; the law upon which the rule is based is already on the books, and the industry has (for the most part) already adjusted its practices.