Do you consider VSI insurance to be a finance charge or not?

VSI insurance is usually added after the fact when the borrower fails to renew their own insurance and is not a finance charge.

In this bank the insurance is required as part of the loan closing. At closing they are told they can get their own policy or spend $25 to purchase it through us. I feel that this is not like homeowners where they can purchase it anywhere.

Wow - you allow poeple to borrower money from you to buy a car with no insurance??

But, you are allowing them to buy auto insurance anyway - aren't you?

I don't fully understand VSI but from what I have been told, our policy is a blanket policy that covers the difference between the value of the car and the insurance amount. The borrower pays for insurance plus this policy.

I hope I have it straight.

This sounds more like a GAP insurance.

IMO, if you are requiring the coverage and passing the charge to the borrower it is a FC.

Reply - I agree - finance charge all the way. No charge like it in a cash transaction.

The regulation actually permits VSI to be excluded from finance charges, if certain conditions are met:

226.4(d)(2) Premiums for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property,5 may be excluded from the finance charge if the following conditions are met:

5 This includes single interest insurance if the insurer waives all right of subrogation against the consumer.

(i) The insurance coverage may be obtained from a person of the consumer's choice,6 and this fact is disclosed.


6 A creditor may reserve the right to refuse to accept, for reasonable cause, an insurer offered by the consumer.

(ii) If the coverage is obtained from or through the creditor, the premium for the initial term of insurance coverage shall be disclosed. If the term of insurance is less than the term of the transaction, the term of insurance shall also be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under Sec. 226.17(g), and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage.



The problem with this is, I have never had a VSI insurer tell me that they waive subrogation against the consumer.

That said, I think the course outlined by Dan nad Randy is the safest, and one I have recommended we follow. Treat VSI as a finance charge.

I agree with you guys but . . . the lending people are hanging their hat on the fact that like homeowners the borrower does not have to buy it from us, they can get it from anyone. One arguement is that we don't have to be concerned with the cost.

When the note is signed is when the disclosure is given.

Supposedly the contract with the insurer does say they wave all rights of subrigation. I am looking for a copy of the contract.

I just can't find in writing that the reg is talking about reasonable cost and ease of getting the insurance.

This is turning into a simple thing that lending has blown out of proportion. Of course I want to be correct but I am concerned that we do the right thing.

Thanks for all the comments.

VSI, protects the bank for the o/s balance of the loan, it does not protect the borrower for liability or other insurance requirements under state laws and as Paul pointed out can be excluded under certain conditions. The key in your scenario is, IMO, VSI is not optional. It's required, therefore my reasoning for it being a finance charge.

In a non-credit deal state law will require a vehicle operator to carry a minimum amount of liability insurance, to the best of knowledge VSI does not offer liability coverage for the individual, therefore it is a "credit" insurance, and if it is not voluntary I don't see the justification for excluding it from he finance charge.

Does VSI just cover auto loans?

VSI can cover cars, trucks, boats, recreational vehicles. I have found in further research that the bank does not have to prove that the customer can purchase the insurance. Also if the preponderance of the fee is for gap insurance it is not included in the finance charge. If the fee is mainly for other things such as towing or storage then it is included in the finance charge. The next question is subregation. If the insurance company does subregate and the other criteria are met then it is not a finance charge. Our policy is subregated so I am in the process of finding out what the majority of the cost goes to.

Say you try to exlude VSI from finance charge. How do you disclose that the insurance might be obtained from a person of the consumer's choice???
Please provide your sample language ?

Our credit disclosure and purcahse of insurance disclosure are combined together.

We just use the box under insurance that they can purchase this from anyone. They don't tell them what the insurance is for but we do not have any other type of insurance on consumer loans.

I think we should get rid of this because it is a major headache and it cost the bank so much because we do so few loans with this insurance.

For LaserPro users,
How do you handle the VSI insurance? Is it included in your "Credit Insurance" disclosure?

We used to use lasar pro and from what I understand it is treated the same way as our new system, ARTA. ARTA does not count it as a finance charge.

Silly question, I'm sure but...what is VSI insurance?

Vendor Single Interest

Thanks!

I thought I would add on to the old thread...

Our bank is considering "lender paid" VSI Default or credit loss insurance across the board on every auto secured loan. Would we still need to disclose this and is it a finance charge?

Doesn't OI #2, Section 1026.4(a) cover the plan you're considering? ("Charges absorbed by the creditor as a cost of doing business are not finance charges....")

Richard, yes that is correct...It does cover the fact that it is not a Finance charge, but I guess my question is, would a consumer need to be aware that that the bank has such a policy if the consumer isn't paying for it?