To make the process of getting motor vehicle insurance fairer for car buyers, legislation sponsored by Assemblyman Roy Freiman to require consumer lenders to disclose motor vehicle insurance products to borrowers was approved Monday by the Assembly Financial Institutions and Insurance Committee.
When getting a loan to buy a vehicle, a borrower must have insurance to cover it. If a buyer does not get insurance or their coverage lapses, the contract usually allows the lender the right to insure the vehicle. This practice is commonly referred to as “force-placed insurance.”
“Force-placed insurance protects only the lender, not the purchaser, even though the buyer is charged for it,” said Freiman (D-Somerset, Mercer, Middlesex, Hunterdon). “Too often, however, lenders assure the buyer it’s a good option. Buyers deserve to know all of their choices when purchasing vehicle insurance to be able to decide what works best for them.”
The bill (A-5323) would require consumer lenders providing motor vehicle loans that include lender-placed insurance to disclose it in the loan agreement, and send a second written disclosure in the mail within 30 days. Lenders that fail to provide disclosure would face fines of up to $25,000.
“When making a significant financial purchase like buying or leasing a car, everyone is entitled to know and understand the details of the contract,” said Freiman. “This bill will ensure buyers have all the information when it comes to their insurance options.”
Additionally under the bill, if a consumer lender is found to have included force-placed insurance unnecessarily because the borrower already had vehicle insurance, the borrower would be entitled to a full refund. If the duplicative charges result in default of the loan or the car being repossessed, the borrower would be entitled to treble damages.
The measure would take effect 90 days after enactment and would apply to any contract entered into on or after the effective date.