BACK TO BASICS, Continued—Junk Fees, Really??? – JD Supra

I write frequently about ancillary products. See last week’s blog: Dentons – Back to Basics, Continued—Junk Fees or the Cost of Valuable Ancillary Products?

Ancillary products include credit property insurance, credit life, disability and unemployment insurance, and motor club. Too often, these products are attacked as being unnecessary and written more to increase the bottom line for creditors than to provide assistance for consumers. But, life has a way of proving the value of ancillary products. I want to relate two stories. 

But, first, let me remind you of how ancillary products are presented to consumers.

First, in most jurisdictions, ancillary products are voluntary—meaning that they are only sold to those who request them.

Second, the premiums associated with such products are usually set by state law or regulation.

And, third, the cost and benefit of the products are required to be fully disclosed to the consumer before purchase.

So, here are two stories:

In my earlier days of practicing law, I worked with an incredibly talented lawyer who came from a humble background. By the time that I knew him, he had become a very successful lawyer. He told me, however, that his father had died when he was very young. His mother had four children to care for and the loss of his father and his father’s income was a serious blow to the family. Before his father’s death, the family had recently purchased household goods, including bedroom furniture, living room furniture and a new washer and dryer “on credit.” The purchase was accompanied by the voluntary purchase of credit life insurance. Without this benefit, the family would have most assuredly lost their household goods to repossession. My lawyer friend told me this story as an object lesson of the value of credit insurance. And, my friend hastened to remind me that no life insurance agent was calling on lower-income families to sell insurance.

My second story comes from just a few years ago. Following Hurricane Ida, the damages suffered by those in her path were staggering. In Louisiana, one credit property insurance company alone paid over $1.0 million in credit property losses. These payments allowed many suffering people an opportunity to reset their lives.

So, whether you are considering the value of credit insurance on a micro level or a macro level, there is a real value for consumers and creditors in the offering of ancillary products.