Banks, at the most basic level, offer credit insurance or debt protection products, which generally kick in to pay, suspend or cancel debt in the event of death, unemployment or disability. Consumer groups argue these lines of credit, namely debt cancellation and debt suspension products, are often unnecessary, come with high fees and offer limited benefits.
As a result, the Dodd-Frank Act gave the bureau jurisdiction to review whether banks are adequately disclosing the terms to customers. The bureau oversees institutions with total assets over $10 billion, meaning only the region’s largest players, such as Wells Fargo and Capital One Financial, will feel the pinch.
How the bureau chooses to review these institutions, however, may have long-term implications for all banks that provide credit insurance and debt protection services, said attorney Adam Maarec of McIntyre & Lemon in the District, during a conference session on bank insurance compliance.
The disclosure information available through the bureau, he said, uses language that dissuades consumers from purchasing the products, which could impact demand over time. For instance, one disclosure warning urges consumers to stop and consider whether they really need these services and whether the benefit is worth the cost.
As part of the Debt Protection Coalition, Maarec said, the American Bankers Insurance Association “is trying to develop a model of disclosure that offers the same information without being as harsh and biasing consumer perception.”
J. Kevin A. McKechnie, executive director of the American Bankers Insurance Association, said the organization “is on the cusp of presenting an alternate disclosure to the CFPB.” The question, he said, is “will they be amenable to a mutually negotiated rulemaking on this issue or are they simply going to issue something as the Fed did?”
Officials from the bureau declined to comment on the issue.
Support for the bureau to rein in debt protection products reached new heights following a U.S. Government Accountability Office report released in March. The audit found that the nine largest credit card issuers, namely banks, raked in $2.4 billion in fees for debt protection products in 2009, but only paid out $518 million in benefits to customers.
With banks remaining mum on the issue, the Bankers Insurance Association has taken up the fight, touting the benefits of insurance.
“These products are significantly more flexible than many other standard insurance products,” Maarec said. “Companies in this space are trying to add value by having loans cancelled or suspended for a number of triggers you can’t find in the standard insurance market. That’s valuable.”