Effective June 1, 2013 

The Consumer Finance Protection Bureau (CFPB) recently issued a final rule designed to prevent mortgage lenders from steering consumers into higher cost and riskier mortgage loans. While most of the new rule does not take effect until January 2014, there are two sections embedded in the new rule that go into effect on June 1, 2013.  These two sections prohibit including mandatory arbitration clauses and waivers of certain consumer rights in mortgage contracts or other agreements and the financing of single premium credit insurance.


Mandatory Arbitration Clauses and Waivers of Certain Consumer Rights

Effective June 1, 2013, your mortgage contracts/notes or other mortgage agreements for loans secured by a dwelling (including home equity lines of credit secured by your member’s principal residence) cannot include terms that require the member to submit to arbitration or any other non-judicial procedure to resolve any dispute or claim that may arise from the transaction.
At the same time, your mortgage contracts/notes or other mortgage agreements can’t bar your members from bringing a claim in court for an alleged violation of any Federal law.  However, it should be noted that this prohibition does not mean that you and your member can’t agree to settle or use arbitration or other non-judicial procedure after the dispute or claim has arisen.

Prohibition on Financing Single Premium Credit Insurance

Consumer protection groups have long argued that single premium credit insurance is, based on the formulas used to rebate unused premiums if the insurance is cancelled prior to maturity, inherently unfair to consumers.  As a result, it’s not surprising to see that the CFPB has moved forward with prohibiting this particular form of credit insurance.
Not many credit unions offer single premium insurance programs any longer and it’s important to note that this prohibition does not apply to credit insurance where the premiums or fees are calculated and paid in full on a monthly basis.  However, if your credit union does still offer single premium credit insurance, you will need to discontinue offering that product on mortgages that you originate after May 31, 2013.
The credit insurance referenced in this new rule includes credit life, credit disability, credit unemployment, credit property insurance, or any other accident, loss-of-income, life or health insurance, or any payments made directly or indirectly for any debt cancellation or debt suspension agreement or contract.  However, this prohibition does not include credit unemployment insurance if the premiums are reasonable, the credit union receives no direct or indirect compensation in connection with the insurance premium, and the unemployment insurance premiums are paid as a result of separate insurance contract and are not paid to a credit union affiliate.