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This article was written by the Consumers Union Southwest Regional Office.
When Mrs. Barbara T. of Dallas borrowed $2,000 from Commercial Credit Corporation (OCCC) in March of this year, she went to sign the loan papers on her lunch hour. Pressed for time, she ended up signing the papers without going over them thoroughly.
Upon later review, she found that the Commercial Credit loan officer had sold her credit life, credit disability, and involuntary unemployment insurance coverage. In her complaint, Mrs. T. told the Office of Consumer Credit Commissioner that the manager never explained that certain types of insurance were optional or how to avoid having these premiums added to the loan.
Furthermore, the lender had allegedly force-placed "vendor single interest" (VSI) property insurance on the car she used as collateral. Lenders may force a consumer to purchase high priced VSI coverage from them if the consumer fails to purchase regular auto coverage. According to Mrs. T, she already had full coverage on the car.
The OCCC advised her to cancel the unwanted insurance in writing. Although she might ultimately have kept these policies for less than a month, she paid for her mistake. It is unlikely that her monthly loan payments will be reduced because the lender is allowed to credit the insurance refund against the final payment on the loan (rather than refigure the total amount financed and reduce the overall interest charge). In addition, her refund may be lower than she expects because refunds are not "pro rata" for the unused coverage. Regulations allow insurers to choose between two different refund methods, each of which allow the insurer to "earn" the premium more quickly in the early months.
SOURCE: Consumer Complaint, Office of Consumer Credit Commissioner, 4/18/97.
