Collateral Protection Insurance: Compliance FAQs

Collateral Protection Insurance is a fantastic tool in any lender's portfolio. While it comes with a host of regulations, it’s our job to ensure you are compliant and reduce any risk associated with CPI.

Before we dive in, note that collateral protection insurance combines a sophisticated borrower insurance tracking system with a lender-placed insurance policy issued when a vehicle loan is not adequately insured.

SEE ALSO: For a deep dive into the nuances of CPI, consider reading our article “Why CPI Insurance Can Be a Slippery Slope”.

Some of the most relevant FAQs surrounding Collateral Protection Insurance are:

1) Is Collateral Protection Insurance Legal?

Yes. The history of CPI has caused some confusion so here is some clarification:

• In 1991, many class-action lawsuits decimated most of the lender-based CPI programs in the US. As a result, very few lenders' boards of directors would allow the use of a CPI program.
• In 1997, the National Association of Insurance Commissioners (NAIC) introduced the CPI Model Act to enable lenders to use Collateral Protection Insurance with certain restrictions to keep lenders from class-action litigation. 
• The introduction of the CPI Model Act began the slow re-emergence of CPI insurance for lenders.
• Nearly 30 years later, Collateral Protection Insurance enables lenders to protect themselves in a legal and compliant way.

2) What Does Collateral Protection Insurance Cover?

Collateral Protection Insurance protects the borrower and also the lender, when the borrower fails to prove they have a policy on their vehicle.

CPI is issued when the lender's insurance tracking system has determined that the borrower's insurance on the vehicle has lapsed.

CPI covers against physical damage and other perils to the vehicle only after the borrower is issued or force-placed with a CPI policy.

3) How Does a Lender Benefit from Collateral Protection Insurance?

In the event a vehicle is repossessed, "lender coverages" that are part of the Collateral Insurance Policy will apply. 

Note: A poorly implemented collateral protection insurance program may invite potential regulatory scrutiny and litigation based on how lenders implement these post-repossession coverages.

To ensure you don’t fall trap to scrutiny, review the specific details we’ve outlined here in our article, A Detailed Review of VSI Insurance vs CPI.

Conclusion

The value of CPI is far-reaching for lenders who need to secure their assets when the borrower cannot. With modern tracking technology and a trustworthy vendor, staying compliant and profitable is achievable.

Questions? Our Compliance Officer Emily Carr-Stephens, will gladly answer even the most nuanced inquiries you may have.

Please feel free to reach out anytime and Ask Us Anything.

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