Magazine article American Banker

Ala., Tenn. Banks Sued on Collateral Coverage

Magazine article American Banker

Ala., Tenn. Banks Sued on Collateral Coverage

Article excerpt

A massive class action relating to collateral protection insurance has been initiated against a number of banks in Alabama and Tennessee, and other banks may face similar suits.

The suit, filed last month in the circuit court of Greene County, Ala., alleges that at least 17 banks, finance companies, insurance agents, and other entities willfully swindled customers on their mobile home insurance.

"The accounts were overcharged, their payments were wrongfully increased, their account balance claimed was excessive, and the plaintiffs ... suffered wrongful repossession and inappropriate credit reporting," the suit said.

The suit was the latest in a long line of such cases involving collateral protection insurance, or forced placing, as practiced by banks. Earlier this year, Trustmark National Bank of Jackson, Miss. was socked with a $38 million judgment in a similar case involving auto insurance. That decision is under appeal.

The most recent case seeks punitive damages of $200 million from each defendant, as well as compensation for the allegedly excessive charges. The suit dates back to actions beginning in January 1983.

Though only five plaintiffs were listed in the class action, their lawyers suspect that the list will eventually expand to "tens of thousands." As for the defendants, their numbers could also dramatically increase as the lawyers proceed with their investigation.

One of the largest financial institutions named in the suit is Leader Financial Corp. of Memphis, with $2.5 billion in assets the biggest thrift company in Tennessee. Ronald W. Stimpson, the company's president, could not be reached for comment.

The suit said that the finance companies and banks lent money to customers to purchase mobile homes. Those companies then obtained collateral insurance for the new mobile home owners. Such insurance is usually included in the financing package. …

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