The Consumer Financial Protection Bureau has issued a proposed rule and request for comment regarding a temporary delay in the June 1 effective date of a final rule provision that would prohibit the financing of credit insurance into a mortgage.
The provision, included in the CFPB's loan originator compensation rule finalized in January, caused confusion among mortgage lenders because the rule's vague language could potentially be applied to transactions other than the single-premium credit insurance premium it was intended to address.
“The prohibition applies to credit life, credit disability, credit unemployment, credit property insurance, and other similar products,” the CFPB said Wednesday in the proposal. “The same provision states, however, that the prohibition does not apply to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis or to credit unemployment insurance for which the premiums are reasonable, the creditor receives no compensation, and the premiums are paid pursuant to a separate insurance contract and are not paid to the creditor's affiliate.”
The CFPB said it did not receive comments regarding the provision when it was first proposed, and anticipated it would not require clarification. Additionally, consumer groups urged the bureau to give the provision an early effective date.
However, since the final rule was published, the CFPB said “industry stakeholders” have communicated concerns that the regulation's text and preamble created “substantial uncertainty” about whether, and under what circumstances, premiums for certain credit insurance products can be charged in connection with a credit transaction secured by a dwelling.
The CFPB will give commenters 15 days to submit suggestions regarding ways it could clarify the rule's language.
CUNA, which requested the delay in April, said it has asked the CFPB to extend the provision's effective date until January 2014, when other mortgage compensation provisions are scheduled to go into effect.
In an April 19 letter to CFPB Director Richard Cordray requesting the delay, CUNA President/CEO Bill Cheney said the practice of charging members monthly for insurance products is fairly common, because credit union data processing systems are programed to add the charges.
“It will be quite costly for the necessary changes to be made by June,” he said.
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