Report Title:

Force-Placed Insurance

Description:

Prevents exorbitant and arbitrary markups of insurance rates by lenders to their borrowers. Eliminates rules of 78 calculations that are excessively and unfairly profitable at the borrower's expense.

HOUSE OF REPRESENTATIVES

H.B. NO.

504

TWENTY-SECOND LEGISLATURE, 2003

 

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 effectuate containment of the costs of "force-placed" insurance, or "vendor's single interest insurance." The legislature finds that lenders should approach procurement of insurance covering their interests, as carefully and diligently as does the borrower; and that to require that level of care and diligence by lenders will eliminate the use of force-placed policies as inappropriate profit centers by lenders and their affiliates, and provide needed protection for the borrower.

SECTION 2. Chapter 431, article 13, Hawaii Revised Statutes, is amended by adding a new section to part I to be appropriately designated and to read as follows:

"§431:13-A Force-placed insurance. In any case of "force-placed insurance", or "vendor's single interest insurance", in which a seller or holder of a security interest procures a policy to protect the insurable interests of the seller or holder of a security interest following the termination of a policy procured by the buyer protecting the insurable interests of both the buyer and the seller or holder of a security interest, as may be required by the holder of a security interest under the contract terms, the rates charged to the buyer for the force-placed policy of the seller or holder of a security interest shall not exceed the lesser of:

(1) The rate formerly paid by the buyer under the buyer's lapsed policy for coverage on the insurable interest; or

(2) The rates allowed by the insurance commissioner.

The seller or holder of a security interest may require that the buyer reimburse the seller or holder of a security interest for premiums paid by the seller or holder of a security interest for the force-placed insurance. If the buyer subsequently obtains a policy to protect the buyer's insurable interests and notifies the seller or holder of a security interest of the buyer's policy, then the seller or holder of a security interest shall cause the buyer's liability to the "force-placed insurance" policy to be cancelled and to cause any refund of the premiums paid by the buyer on the "force-placed insurance" policy to be reimbursed to the buyer.

For the purpose of calculating any refund of the unearned insurance premium to be reimbursed to the buyer, no insurer shall compute the refund based on the "rule of 78" or other method of precomputing finance charges based on the "sum of the digits". Every insurer 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 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."

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. In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 5. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval.

 

INTRODUCED BY:

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