Report Title:

Force-Placed Insurance

Description:

Requires lenders who force-place motor vehicle insurance on the vehicle that is the subject of the loan after the borrower allows the insurance required under the loan contract to lapse, to obtain reimbursement from the borrower for insurance premiums that do not exceed the lesser of rates allowed by the Insurance Commissioner, or 110 percent of the rate the buyer can obtain for the same coverage; allows a borrower to obtain a policy to replace the force-placed insurance. (HB504 HD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

504

TWENTY-SECOND LEGISLATURE, 2003

H.D. 1

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO FORCE-PLACED INSURANCE.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The purpose of this Act is to contain, with respect to automobile loans, the costs of "force-placed", or "vendor's single interest" insurance.

The legislature finds that lenders should approach procurement of insurance protecting their interest in an automobile that is the subject of a loan, as carefully and diligently as would the borrower, who must pay the premiums for that insurance. The legislature further finds that to require this level of care and diligence will eliminate the use of force-placed policies as inappropriate profit centers for lenders and their affiliates, and provide needed protection for the borrower.

SECTION 2. Chapter 480, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§480- Automobile loan force-placed insurance. (a) In any case of an automobile loan in which insurance is force-placed by the lender, the rates charged to the buyer for the force-placed policy shall not exceed the lesser of:

(1) One hundred ten per cent of the rate the buyer can obtain for the coverage force-placed by the lender; or

(2) The rates allowed by the insurance commissioner.

(b) For the purpose of calculating the rate under subsection (a)(1), the buyer may submit to the lender a quotation for coverage of the interest insured under the force-placed policy. The coverage that is the subject of the quote shall:

(1) Fulfill the buyer’s obligation under the credit sales contract with regard to coverage of the insurable interest; and

(2) Be obtained in writing from an insurer that is selected by the buyer and licensed to practice in this State.

If the buyer declines to submit a valid quotation, the lender shall exercise reasonable care and diligence in procuring the force-placed policy.

(c) The lender may require the buyer to reimburse the lender for premiums paid by the lender for insurance that is force-placed in compliance with this section. If the buyer subsequently obtains a policy that protects the lender's insurable interests and notifies the lender of the buyer's policy, the lender shall:

(1) Cause the buyer's liability for the force-placed insurance policy to be canceled; and

(2) Cause any refund of the premiums paid by the buyer on the force-placed insurance policy to be reimbursed to the buyer.

(d) For the purpose of calculating any refund of the unearned insurance premium to be reimbursed to the buyer:

(1) No lender shall compute the refund based on the rule of 78 or similar method of precomputing finance charges; and

(2) Every lender shall compute the refund based on a method that is at least as favorable to the buyer as the actuarial method, in which payments made on a debt are allocated between the amount financed and the finance charge, and pursuant to which a payment is applied first to the accumulated finance charge and any remainder is subtracted from, or any deficiency is added to, the unpaid balance of the amount financed.

(e) As used in this section:

"Force-placed insurance" means insurance coverage purchased according to the terms of a credit sales contract by a lender who is a seller of, or holder of a security interest in, tangible collateral, which protects the lender's interest in the collateral following the termination of coverage that was procured by the buyer of the collateral according to the terms of the credit sales contract to protect the insurable interests of both the buyer and the lender in the collateral.

"Rule of 78" means a numbering scheme used to compute the amount of interest owed by a consumer that increases the interest owed to an amount above that derived from normally accepted simple interest calculation practices."

SECTION 3. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 4. New statutory material is underscored.

SECTION 5. This Act shall take effect on July 1, 2050.