The regulatory challenges credit unions face with insurance tracking programs

Lenders undertake risk when providing their borrowers with a secured loan, and it’s their responsibility to see that their interest remains secure by maintaining a procedure that tracks the insurance on the property securing the loan. Many financial institutions have turned to third parties to provide this service since this practice can be very labor intensive.

Financial institutions face a unique set of challenges as regulations surrounding lender placed tracking and insurance programs are changing every day. Over the last few years, the industry has evolved because of regulations and penalties passed down from state insurance departments, Fannie Mae, Freddie Mac, and the Consumer Financial Protection Bureau (CFPB). Most of these regulations were developed to solve problems that have plagued this particular segment of the business for a number of years, including high rates, commissions, and free or low-cost tracking services. For example, some of these problems resulted in additional fees for a lender placed policy that borrowers were responsible for paying, but more often than not couldn’t afford.

Mortgage insurers have already been a target of the CFPB. According to Law 360, in November 2013, they sued Republic Mortgage Insurance Co. (RMIC) for paying illegal kickbacks to mortgage lenders in exchange for their business—a violation of the Real Estate Settlement Procedures Act. This lawsuit resulted in a $100,000 penalty against RMIC.

Earlier that year, the CFPB also initiated actions against United Guaranty Corp., Radian Guaranty Inc., Mortgage Guaranty Insurance Corp., and Genworth Mortgage Insurance Corp., for the same violation of paying improper kickbacks to mortgage lenders in exchange for business. This group of violations resulted in more than $15 million in penalties.

Since history tends to be a great indicator of future results, it’s easy to infer that the CPI industry could be next on the CFPB’s target list.

Many lenders have taken a somewhat lackadaisical approach with their attention to compliance and the CFPB’s scrutiny, however, the pressure to follow all of the rules and regulations handed down—and stay educated about new laws coming down the pipeline—has not diminished. But it’s time to take heed, friends. The CFPB is not just slapping lenders on the wrist and issuing a stern warning. The ramifications for being in violation of any of the rules and regulations of the Consumer Protection Act of 2010 are hitting violators where it hurts most—their bottom line.

At SWBC, we take a proactive approach to compliance—meeting or exceeding the industry standard with the products and services that we offer our financial institution clients. A few years ago, we decided that it was time to take that proactive approach in our CPI business by developing a lender placed auto product—CPI Hybrid—that would address some of the major concerns that had been raised in the mortgage tracking industry. We created a product with a lower rate of $50 to $90 per month (as opposed to the traditional $2,000 for an annual policy), and took out some of the unnecessary coverage being paid for by the borrower, but only benefitting the financial institution, such as skip and premium deficiency. We also mandated that there will be NO commissions on this product.

Our goal is to offer our clients a product that protects their interests and assets, while protecting them from the potential embarrassing scrutiny and monetary penalties that could accompany a CFPB violation. To learn more about CPI Hybrid, click here.

Mark Hein

Mark Hein

As CEO for SWBC’s Financial Institution Group, Mark Hein manages the day-to-day operations and sets the strategic direction for the division. He is committed to continuous product training, increasing ... Web: www.swbc.com Details