BACK TO BASICS, continued—Undesirable fees, really??? | Denton
I write frequently about ancillary products. See last week’s blog: Dentons Back to Basics, Continued—Unwanted Fees or Cost of Valuable Ancillary Products?
Ancillary products include borrower’s insurance, borrower’s insurance, disability and unemployment insurance and automobile club. Too often these products are accused of being useless and written more to increase the bottom line for creditors than to provide assistance to consumers. But, life has a way of proving the value of ancillary products. I want to tell two stories.
But, first of all, let me remind you how ancillary products are presented to consumers.
- First, in most jurisdictions ancillary products are voluntary, meaning they are only sold to those who request them.
- Second, the premiums associated with these products are usually set by state law or regulation.
- And, third, the cost and benefits of the products must be fully disclosed to the consumer before purchase.
So here are two stories:
Early in my law practice, I worked with an incredibly talented lawyer from a humble background. By the time I knew him he had become a very successful lawyer. He told me, however, that his father died when he was very young. His mother had four dependent children and the loss of his father and his father’s income was a blow to the family. Prior to his father’s death, the family had recently purchased household items, including bedroom furniture, living room furniture, and a new washer and dryer “on credit.” The subscription was accompanied by the voluntary subscription of borrower insurance. Without this benefit, the family would most certainly have lost their household goods due to repossession. My lawyer friend told me this story as an object lesson in the value of credit insurance. And, my friend was quick to remind me that no life insurance agent was using low-income families to sell insurance.
My second story is from a few years ago. Following Hurricane Ida, the damage suffered by those in its path was staggering. In Louisiana, one credit insurer alone paid out over $1.0 million in credit asset losses. These payments have enabled many suffering people to regain control of their lives.
So, whether you consider the value of credit insurance at the micro or macro level, there is real value for consumers and creditors in offering ancillary products.