Blanket VSI (Vendor’s Single Interest) continues to stand out as a compliant, cost-effective, and borrower-friendly solution for lenders seeking to protect their consumer loan portfolios—without the administrative burden of traditional Outsourced Insurance Tracking or Collateral Protection Insurance (CPI) programs.
Thanks to provisions in Regulation Z under the Truth in Lending Act (TILA), Blanket VSI—also known as Single Interest Insurance—receives special regulatory treatment that allows lenders to exclude its cost from the finance charge and APR calculation, provided certain conditions are met. This exemption provides lenders greater flexibility in structuring their loan products.
Regulation Z, enacted under the Truth in Lending Act (TILA), ensures transparency by defining which costs must be included in the finance charge and annual percentage rate (APR) disclosed to borrowers. Normally, insurance premiums paid by the borrower count toward the finance charge and affect the APR calculation. However, Regulation Z includes a specific carve-out for Single Interest Insurance—such as Blanket VSI—that protects the lender’s interest in collateral without directly benefiting the borrower.
This carve-out allows lenders to exclude Blanket VSI premiums from the finance charge and APR calculation when specific conditions are met. The benefit is significant: lenders gain greater flexibility in loan product pricing, avoid artificially inflating the APR, and can offer cost-effective, borrower-friendly portfolio protection solutions without the administrative complexity and borrower friction often associated with traditional insurance tracking and force-placed policies.
Leveraging this regulatory exemption enables lenders to simplify loan servicing, reduce charge-offs, and strengthen borrower relationships while maintaining compliance and operational efficiency.
Blanket VSI, also known as Vendor’s Single Interest (VSI), is a portfolio-level insurance solution that automatically protects a lender’s interest in collateral—typically vehicles—against losses such as uninsured physical damage, theft, and borrower skip, without the need for ongoing insurance tracking or force-placed coverage.
Unlike traditional Collateral Protection Insurance (CPI), Blanket VSI requires only an initial insurance verification at loan closing and is typically charged as a one-time, life-of-loan fee. With no borrower notifications or monthly premiums, it simplifies servicing, reduces charge-offs and administrative costs, and—thanks to the Regulation Z carve-out—its premium can often be passed to borrowers without being included in the APR, provided required disclosures are made and subrogation rights are waived.
Blanket VSI insurance offers multiple advantages:
No Insurance Tracking Required: Eliminates the administrative burden and costly errors from monitoring borrower insurance status post-closing.
No Force-Placed Insurance or Borrower Notifications: Avoids borrower conflict by removing the need for force-placed policies or lapse notifications.
One-Time, Life-of-Loan Premium: Simplifies premium collection and disclosures compared to recurring monthly CPI premiums.
Regulation Z Exemption: Premiums can be excluded from the finance charge and APR calculation under 12 CFR § 1026.4(d)(2), giving lenders pricing flexibility.
Streamlined Loan Servicing: Portfolio-wide automatic coverage saves servicing teams time and reduces friction.
Reduced Charge-Offs: Protects against losses from uninsured collateral damage, theft, or borrower skip.
Improved Borrower Experience: Removes confusing insurance tracking and CPI notices that can cause payment shocks.
Consistent Portfolio-Wide Protection: Ensures every vehicle loan is covered from day one, regardless of borrower behavior.
Under 12 CFR § 1026.4(d)(2), Regulation Z allows Single Interest Insurance (Blanket VSI) to be excluded from the finance charge if the following conditions are met:
Borrower Choice Disclosure: Borrowers must be clearly informed they can choose their own insurance provider.
Waiver of Subrogation: The insurer must waive any right to recover claims from the borrower.
Coverage Primarily Benefits the Lender: If the policy includes lender-only coverage (e.g., repossession damage), it must be negligible in cost (under $1 for single-year or $5 for multi-year policies) or separated out to remain excludable.
According to Regulation Z commentary, lenders are not required to verify if the borrower can obtain similar coverage independently, even if the disclosure suggests they may.
Excerpt from Comment 4(d)-9:
“Single-interest insurance. Blanket and specific single-interest coverage are treated the same. A charge for either may be excluded from the finance charge if:
i. The insurer waives any right of subrogation.
ii. Other requirements of § 1026.4(d)(2) are met. This includes offering the consumer the option to obtain insurance from a provider of their choice. The creditor need not ascertain whether the consumer is able to purchase insurance elsewhere.”
The carve-out exists due to the widespread use of Single Interest Insurance by banks and credit unions, its operational efficiency, and borrower-friendly design. Blanket VSI simplifies administration, reduces borrower friction, lowers delinquencies caused by CPI charges, and eliminates costly tracking and notification errors.
Unitas Financial Services offers Blanket VSI programs that meet today’s operational and compliance standards. Our solutions align with examiner expectations for transparency and fair lending, reduce administrative burden, minimize borrower disruption, and provide consistent, portfolio-wide protection that’s easy to implement and maintain.
Blanket VSI insurance is more than loan protection—it’s a regulator-supported, cost-effective, and efficient alternative to CPI and insurance tracking. By complying with Regulation Z requirements, lenders can confidently offer portfolio protection that reduces administrative burden and enhances borrower relationships.
Read our Vendor's Single Interest eBook