Lenders should pay attention to how they charge consumers collateral protection insurance (CPI) in the wake of Wells Fargo’s agreement to shell out $394 million to resolve claims that it unlawfully placed coverage on auto loans, David Gemperle, partner at Nisen & Elliot, told Powersports Finance.
Consumers claimed that the bank deceptively put CPI policies into place on consumer auto loans, which reportedly resulted in unnecessary expenses and high payment amounts. Wells Fargo settled the claims in August.
“That’s a huge area of liability we’re all aware of now,” Gemperle said. “And anybody in powersports placing coverage should look closely at those programs.”
Additionally, there’s a risk in powersports that the vehicle operator will not get insurance coverage because of the expense. In those cases, lenders might offer a similar type of insurance called VSI, which comes with its own liability.
“So you might have a program for VSI insurance, and that’s where you require at the outset of the transaction that the consumer gets coverage,” Gemperle explained. “That will cover your interest alone on top of any requirement to obtain a normal vehicle operation insurance. And that’s something you can only do in certain states.”
Not every state permits VSI insurance, so lenders need to pay attention to the requirements in the areas in which they do business.
For more compliance issues lenders, check out the latest episode of Plug In with Powersports Finance, a podcast with experts in the powersports industry.
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