REPORT TITLE:
Force-Placed Ins


DESCRIPTION:
Prevents exorbitant and arbitrary markups of insurance rates by
lenders to their borrowers.  Eliminates rules of 78 calculations
that are excessively and unfairly profitable at the borrower's
expense.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
HOUSE OF REPRESENTATIVES                H.B. NO.1264       
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO FORCE-PLACED INSURANCE.



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

 1      SECTION 1.  The purpose of this Act is to effectuate
 
 2 containment of the costs of "force-placed" insurance, or
 
 3 "vendor's single interest insurance."  The legislature finds that
 
 4 lenders should approach procurement of insurance covering their
 
 5 interests, as carefully and diligently as does the borrower; and
 
 6 that to require that level of care and diligence by lenders will
 
 7 eliminate the use of force-placed policies as inappropriate
 
 8 profit centers by lenders and their affiliates, and provide
 
 9 needed protection for the borrower.
 
10      SECTION 2.  Chapter 431, article 13, Hawaii Revised
 
11 Statutes, is amended by adding a new section to part I to be
 
12 appropriately designated and to read as follows:
 
13      "�431:13-     Force-placed insurance.  In any case of
 
14 "force-placed insurance", or "vendor's single interest
 
15 insurance", in which a seller or holder of a security interest
 
16 procures a policy to protect the insurable interests of the
 
17 seller or holder of a security interest following the termination
 
18 of a policy procured by the buyer protecting the insurable
 
19 interests of both the buyer and the seller or holder of a
 

 
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                                     H.B. NO.1264       
                                                        
                                                        

 
 1 security interest, as may be required by the holder of a security
 
 2 interest under the contract terms, the rates charged to the buyer
 
 3 for the force-placed policy of the seller or holder of a security
 
 4 interest shall not exceed the lesser of:
 
 5      (1)  The rate formerly paid by the buyer under the buyer's
 
 6           lapsed policy for coverage on the insurable interest;
 
 7           or
 
 8      (2)  The rates allowed by the insurance commissioner.
 
 9 The seller or holder of a security interest may require that the
 
10 buyer reimburse the seller or holder of a security interest for
 
11 premiums paid by the seller or holder of a security interest for
 
12 the force-placed insurance.  If the buyer subsequently obtains a
 
13 policy to protect the buyer's insurable interests and notifies
 
14 the seller or holder of a security interest of the buyer's
 
15 policy, then the seller or holder of a security interest shall
 
16 cause the buyer's liability to the "force-placed insurance"
 
17 policy to be cancelled and to cause any refund of the premiums
 
18 paid by the buyer on the "force-placed insurance" policy to be
 
19 reimbursed to the buyer.
 
20      For the purpose of calculating any refund of the unearned
 
21 insurance premium to be reimbursed to the buyer, no insurer shall
 
22 compute the refund based on the "rule of 78" or other method of
 
23 precomputing finance charges based on the "sum of the digits".
 

 
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                                     H.B. NO.1264       
                                                        
                                                        

 
 1 Every insurer shall compute the refund based on a method that is
 
 2 at least as favorable to the buyer as the actuarial method, in
 
 3 which payments made on a debt are allocated between the amount
 
 4 financed and the finance charge pursuant to which a payment is
 
 5 applied first to the accumulated finance charge and any remainder
 
 6 is subtracted from, or any deficiency is added to, the unpaid
 
 7 balance of the amount financed."
 
 8      SECTION 3.  This Act does not affect rights and duties that
 
 9 matured, penalties that were incurred, and proceedings that were
 
10 begun, before its effective date.
 
11      SECTION 4.  New statutory material is underscored.
 
12      SECTION 5.  This Act shall take effect upon its approval.
 
13 
 
14                           INTRODUCED BY:  _______________________