HB1698 HD1

Report Title:

Force-Placed Insurance

 

Description:

Prevents exorbitant and arbitrary markups of rates of "force-placed insurance", insurance purchased by a lender according to a credit sales contract to protect the lender's interest in tangible collateral. (HB1698 HD1)

 

HOUSE OF REPRESENTATIVES	H.B. NO.	1698
TWENTY-FIRST LEGISLATURE, 2002		H.D. 1
STATE OF HAWAII

A BILL FOR AN ACT

 

RELATING TO FORCE-PLACED INSURANCE.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Chapter 480, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§480- Force-placed insurance. (a) In any case of force-placed insurance, the rates charged to the buyer for the force-placed policy of the lender shall not exceed the lesser of:

(1) One hundred ten per cent of the rate formerly paid by the buyer under the buyer's lapsed policy for coverage of the insurable interest; or

(2) The rates allowed by the insurance commissioner.

(b) The lender may require that the buyer reimburse the lender for premiums paid by the lender for the force-placed insurance. If the buyer subsequently obtains a policy that protects the lender's insurable interests and notifies the lender of the buyer's policy, then the lender shall:

(1) Cause the buyer's liability for the "force-placed insurance" policy to be canceled; and

(2) Cause any refund of the premiums paid by the buyer on the force-placed insurance policy to be reimbursed to the buyer.

(c) For the purpose of calculating any refund of the unearned insurance premium to be reimbursed to the buyer, no lender shall compute the refund based on the rule of 78 or similar method of precomputing finance charges. Every lender shall compute the refund based on a method that is at least as favorable to the buyer as the actuarial method, in which payments made on a debt are allocated between the amount financed and the finance charge pursuant to which a payment is applied first to the accumulated finance charge and any remainder is subtracted from, or any deficiency is added to, the unpaid balance of the amount financed.

(d) As used in this section:

"Force-placed insurance" means insurance coverage purchased according to the terms of a credit sales contract by a lender who is a seller of, or holder of a security interest in, tangible collateral, which protects the lender's interest in the collateral following the termination of coverage procured by the buyer of the collateral according to the terms of the credit sales contract, protecting the insurable interests of both the buyer and the lender in the collateral.

"Rule of 78" means a numbering scheme used to compute the amount of interest owed by a consumer that increases the interest owed to an amount above that derived from normally accepted simple interest calculation practices."

SECTION 2. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun, before its effective date.

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.