Buying a new vehicle is a major transaction for most Virginians, but worth it when you drive it home off the lot. You sign a lot of legal documents and spend a long time at the dealership. You might finance through the dealership’s financial division or with a bank.
It can be disconcerting when your monthly payments begin and the amount billed is higher – sometimes significantly – than what you thought you negotiated. Do not just accept that the bill is correct. Approach the lender to understand what happened and whether it added force-placed insurance premiums to the original payment amount without your knowledge.
What is force-placed insurance?
Most vehicle finance agreements require you as the buyer-owner to maintain adequate insurance to protect the lender’s interest in the vehicle as collateral. If the car were damaged in an accident, the lender could recover any loss through the policy.
If a lender believes that you have not insured the vehicle or have insured it inadequately, the bank may purchase force-placed insurance for the automobile. This kind of policy generally only covers physical property losses in a collision or through theft. This could leave you liable and uncovered for injuries or death in an at-fault accident or for your own personal injuries should the other driver be at fault and underinsured.
Other terms for these policies include lender-placed, collateral-protection or creditor-placed insurance. The lender will bill you for force-placed premiums, which can be expensive and increase your monthly payment significantly. They may also charge you for retroactive premiums for months they believe the auto was insufficiently insured.
Sometimes the loan servicer, finance company or other lender imposes force-placed insurance on you based on a mistake or miscommunication that implies that you have inadequate or no coverage. Scenarios may include:
- Unintended insurance-policy lapse or cancellation
- A clerical or human error in the dealership’s or your communication with the lender
- Inadequate coverage through mistake
- Failure to provide proof of coverage in a timely manner
- Lender did not send required notices of intention to purchase force-placed insurance
- Bank or financial institution makes a mistake
Sometimes lenders engage in deceptive schemes on a large scale to collect more money through force-placed insurance billings, potentially in violation of consumer-protection or deceptive-practices laws.
Get force-placed premiums off your loan payment
Its usually not a good idea to stop paying your car loan in part or in whole over a force-placed premium. Find out if the finance company is mistaken in its belief that you are under- or uninsured. Provide proper proof of coverage, request the lender cancel the policy, ask for a refund of overpayment (for months with double coverage) and correction of the bill.
If the mistake is yours and you are not appropriately insured under the contract terms, get adequate coverage and provide proof to the lender. Ask the bank to cancel the force-placed policy (it has 15 days after proof of insurance) and to correct the billing going forward.
Seek legal help if you cannot resolve the dispute
If you cannot settle the issue and get the force-placed policy off your vehicle along with the premiums from your billing, an attorney can investigate the situation on your behalf to determine your legal options. A lawyer may be able to negotiate a resolution with the lender without further action, but if necessary, counsel can explore whether additional remedies may be available through Virginia or federal agencies like the Consumer Financial Protection Bureau (CFPB ) or the courts.