What the Wells Fargo Collateral Protection Insurance Scandal Means for You
Wells Fargo has been in the headlines for months, due to one scandal or another. Late last month the New York Times reported that more than 800,000 people who went through the bank for their car loans were charged for insurance that they did not need. The customers had collateral protection insurance (CPI) force placed on them, even some customers who had proof of insurance coverage.
What can a lien holder do to avoid becoming tomorrow's headline news?
First thing is to understand the law regarding forced-placed insurance. Collateral protection insurance is insurance coverage purchased unilaterally by a creditor for protection against loss of, or damage to, property serving as collateral for a loan. The Texas Finance Code authorizes a lien holder to add such coverage if a debtor fails to maintain adequate insurance.
A creditor is required to clearly describe in the contract the types of coverage required of the debtor in order for this right to be enforceable. A creditor also must affirmatively mark the requirement boxes on a contract form and state minimum deductibles if the requirement is to be enforceable. Once collateral protection is properly required on a contract, the failure of the debtor to obtain or maintain such coverage is a default, and triggers the creditor's remedies, including force-placing collateral protection coverage.
In sum, collateral protection insurance is a fair and balanced solution. It only should be charged to those who don't maintain adequate private vehicle insurance. The law requires it.
TIADA encourages members to work closely with their collateral protection insurance provider and seek legal counsel if you are unsure of your policies or practices. You can find a number of companies that provide CPI in the TIADA directory.