Missouri Checking Sales of Credit Insurance: State Concerned That Borrowers Might Be Pressured by Lenders to Buy Policies

American Banker, March 1, 1984 | Go to article overview

Missouri Checking Sales of Credit Insurance: State Concerned That Borrowers Might Be Pressured by Lenders to Buy Policies


KANSAS CITY -- The Missouri Division of Finance has begun to scrutinize banks and other lenders that sell unusually large amounts of credit insurance.

Kenneth Littlefield, Missouri's finance commissioner, said he has sent memos to banks and finance companies telling them that state examiners will routinely check each lender's "penetration" of credit insurance -- the percentage of borrowers that are sold such insurance -- or the amount of such insurance sold.

If a bank has sold the insurance to 90% or more of its borrowers, the state will ask the borrowers whether they felt pressured to buy the insurance.

State examiners already are questioning the loan customers of one bank having high penetration, he said. Mr. Littlefield declined to name the bank because of confidentiality rules, but he said it was in central Missouri.

"There is a pretty good potential for abuse," Mr. Littlefield said. "We don't want high-pressure sales tactics."

He said his department is concerned that some consumers may feel subtly pressured into buying the insurance from the bank, particularly if the borrower is having a bit of trouble negotiating a loan.

In a separate matter, four East Coast insurance industry associations mentioned two Missouri companies in a protest filed last month with the Federal Reserve Board over credit insurance issued by banks. The associations called such insurance a "national scandal."

In the protest, they contended that Commerce Bancshares Inc. of Kansas City and Merantile Bancorp. of St. Louis are harvesting "huge profits" from credit insurance.

Mercantile is the largest bank holding company in Missouri in terms of deposits, and Commerce ranks second. Only Companies Mentioned

Thomas Wilson, a Washington lawyer representing the four insurance trade groups, said he filed the protest because the Fed is considering eliminating a regulation that holds down credit life premiums.

The two Missouri bank holding companies were the only ones mentioned in the protest, although Mr. Wilson contends that other banking companies are amassing profits just as large.

The two Missouri companies were singled out, he said, because they earlier had asked the Fed for permission to expand their insurance activities by letting them sell property and casualty insurance on cars and homes on which they make loans. …

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