The CFPB’s proposed changes to the Regulation Z prohibition on financing credit insurance premiums (Section 1026.36(i)) fall short of industry expectations that the CFPB would clarify that level and levelized premiums are outside the prohibition’s scope.  The prohibition was one of the amendments to Regulation Z made by the CFPB’s January 2013 final rule on loan originator compensation.  Despite the CFPB’s acknowledgment in the proposal’s background discussion that its interpretation of the prohibition in the final rule may have been “overbroad,” the proposal continues to reflect an overly broad reading that does not provide a clear safe harbor for many credit insurance programs. Comments on the proposed amendments are due by July 22, 2013. 

The proposal rejects industry’s argument that levelized and level premiums should be considered “calculated on a monthly basis” even though they do not decrease each month as the loan balance decreases.  It also does not clearly exclude such premiums from the prohibition on the basis that they are not “financed” even though they do not increase the borrower’s principal loan amount and are paid in full each month. 

For a detailed summary of the proposal, see our legal alert.  We will provide additional analysis of the proposal in future blog posts once we study it further.