Navigating CFPB Lender-Placed Insurance Compliance

In the complex world of force-placed insurance compliance, my job is to find the “needle in the haystack” and answer your most difficult, detailed questions. 

Compliance with regulatory requirements is paramount for lenders in the modern financial landscape. When it comes to lender-placed insurance, the Consumer Financial Protection Bureau (CFPB) plays a crucial role in establishing guidelines and regulations to protect consumers' interests. 

A few months ago, we created the Ask Us Anything resource enabling our clients and others in the industry to send me their regulation/compliance questions. Since then, I’ve had the pleasure of answering some really interesting questions and I wanted to share one of them with you! 

Before we get into it, here are a few CFPB facts for those new to the industry:

• The CFPB is a regulatory agency responsible for overseeing consumer financial products and services. 
• Lender-placed insurance refers to the practice of securing insurance coverage on collateral when a borrower fails to maintain adequate insurance or lets their coverage lapse. 
• CFPB regulations aim to ensure fair treatment of consumers in relation to lender-placed insurance.

Next, here is a basic breakdown of their regulations and guidelines:

• Lenders must provide clear and transparent disclosures to borrowers regarding lender-placed insurance, including details about coverage, costs, and the reasons for implementation.
• CFPB regulations require lenders to assess the reasonableness of the costs associated with lender-placed insurance and ensure that borrowers are not charged excessive premiums.
• Lenders must adhere to specific notification requirements, such as providing advance notice to borrowers before implementing lender-placed insurance and maintaining open lines of communication throughout the process.
• The CFPB expects lenders to establish robust compliance management systems to ensure adherence to regulations and identify and address any potential risks or violations.

CFPB Compliance Q&A 

We had force-placed insurance on a loan from July 2015-September 2015. It is now 2023 and the borrower has provided valid proof of hazard insurance for this period. Must we refund the borrower for this overlap in coverage?

Per RESPA 1024.37(g), you must refund the borrower for ANY period of overlapping insurance coverage and remove all charges associated with the force-placed insurance within 15 days of receiving evidence demonstrating that the coverage complies with the loan contract’s requirements. See below:

(g) Cancellation of force-placed insurance. Within 15 days of receiving, from the borrower or otherwise, evidence demonstrating that the borrower has had in place hazard insurance coverage that complies with the loan contract's requirements to maintain hazard insurance, a servicer must:

(1) Cancel the force-placed insurance the servicer purchased to insure the borrower's property; and

(2) Refund to such borrower all force-placed insurance premium charges and related fees paid by such borrower for any period of overlapping insurance coverage and remove from the borrower's account all force-placed insurance charges and related fees for such period that the servicer has assessed to the borrower.

Conclusion

Navigating CFPB lender-placed insurance compliance may be tedious for some, but at Miniter Group, we truly enjoy the nuances of these policies. We’re here to aid you in your compliance. Please reach out anytime!