To make the process of getting motor vehicle insurance fairer for car buyers, legislation sponsored by Assembly Democrats Roy Freiman and Joann Downey to require creditors to make certain disclosures regarding collateral protection insurance to consumer debtors was signed into law by the Governor on Monday.
When getting a loan to buy a vehicle, the buyer must have insurance to cover it. If a buyer does not get insurance or their coverage lapses, the contract usually allows the creditor 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 legislation (A-5323), now law, will require consumer creditors providing motor vehicle loans that include creditor-placed collateral protection insurance to disclose it by mail within 14 calendar days following placement of the insurance, where upon debtors have an opportunity to provide evidence of insurance coverage. A creditor failing to provide disclosure could face fines of up to $25,000 under the new law.
“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 Downey (D-Monmouth). “This law will ensure buyers have all the information when it comes to their insurance options.”
Additionally under this law, if a creditor is found to have included force-placed insurance unnecessarily because the borrower already had vehicle insurance, the borrower will be entitled to a full refund. If the duplicative charges result in default of the loan or the car being repossessed, the borrower will be entitled to treble damages.
The law takes effect 90 days following enactment and will apply to any contract entered into on or after the effective date.