Many lenders I have connected with in the past three years have heard of blanket insurance coverages for their collateralized loan portfolios. However, CPI has become the industry standard for tracking and force placing insurance on auto loans, and that has come to the detriment to lenders, members, and borrowers. This article is the second in a series of two that discusses some of the most common objections to VSI that I hear from financial institutions.
As I have met with lenders over the past three years, many have heard of blanket insurance coverages. Oftentimes, blanket insurance comes with an understanding that a blanket policy carries more “risk” than a CPI policy. CPI has become the industry standard for tracking and force placing insurance on auto loans, and that has come at the detriment to lenders, members, and borrowers. Almost daily, I hear lenders say, “there has to be another way,” but when we talk about blanket insurance, there is a negative aura around it, and it often comes with the same initial objections.
With most of 2021 behind us, lenders have primarily continued to have near-record volumes in home purchases and refinances. Though some experts had predicted 2021 to be the year of rising rates and declines in these markets, that has not come to fruition. Owing perhaps to unprecedented government intervention, or the continued volatility of markets in general, interest rates have remained low, and demand for new home loans and refinances has remained strong.
TRIA stands for the Terrorism Risk Insurance Act (TRIA). Unfortunately, terrorism is a sad and scary reality that can impact businesses around the world without warning. While no one thinks it will happen in their community, the fact is that a terrorist attack can strike at any second.
Last week I had the privilege of speaking to several executives at a mid-sized credit union about the differences between the CPI program they currently use to protect their consumer portfolio and the Blanket VSI policy that could replace it. We talked through the advantages and disadvantages of each, from the amount of staff time CPI takes compared to the simplicity of Blanket, the direct and hidden costs each program holds for the credit union (CPI has several hidden costs), and the perceptions each program can give to the credit union’s members. When we reached the point in our discussion about member benefit and perception, the credit union’s Risk Management Officer, (who was tasked with playing devil’s advocate throughout the entire meeting) brought up the subject of borrower’s claims and it led us to an in-depth conversation on this apparent benefit a CPI program may have for credit union members.
In the wake of COVID-19, the CFPB has shifted over half of its supervisory activities to “Prioritized Assessments” (PAs). PAs were designed to obtain real-time information to analyze pandemic-related market developments to determine which markets were most likely to pose risk to consumers. Auto loan servicing was the first target of their Summer 2021 Supervisory Highlights report. In this recent issue, the agency has identified several unfair acts or practices related to Lender-Placed Collateral Protection Insurance.
