Automotive

credit insurance from dealership...illegal?

  • Last Updated:
  • Jul 4th, 2018 11:35 am
[OP]
Deal Addict
User avatar
Aug 3, 2007
3436 posts
280 upvotes
Toronto

credit insurance from dealership...illegal?

Hey Guys,

so my cousin just bought a new car and i was reading the bill of sale. He paid $1899 for "health and accident insurance". When i asked him what this is, he said that they included so that he can get a lower interest rate (his credit isnt too good). He said that if he didnt take it, they would have to charge him 16.99% interest for the loan. My question is can they do that? They never mention it anytime during the credit check or sale. I was looking around online and came across Consumer Law Group CP and their site reads "When financing your loan through the dealership, pay attention to the details. Some dealers will include a credit insurance policy in the terms of the loan without telling you. Others will not approve your loan unless you agree to purchase the insurance. Both of these practices violate federal Truth in Lending laws and are considered fraud." Can he go back and have them remove it?
Last edited by shoei on Jun 22nd, 2018 12:40 am, edited 1 time in total.
29 replies
Deal Expert
User avatar
Jul 30, 2007
32078 posts
19297 upvotes
Toronto
He should go back and sort out this issue. If dealer refuses, then report to the provincial regulator for further discussion on your next course of action
Jr. Member
Jul 3, 2017
177 posts
188 upvotes
Southern Ontario
Thats tied selling and its illegal in Ontario. No legitimate financing company will force a customer to accept a credit insurance or life and disability policy in order to qualify for financing. Its actually in the fine print of the conditional sales agreement.
[OP]
Deal Addict
User avatar
Aug 3, 2007
3436 posts
280 upvotes
Toronto
booblehead wrote: He should go back and sort out this issue. If dealer refuses, then report to the provincial regulator for further discussion on your next course of action
Where can I find info regarding the provincial regulator
[OP]
Deal Addict
User avatar
Aug 3, 2007
3436 posts
280 upvotes
Toronto
dealership said no, its been signed. whats his next course of action? can OMVIC do anything?
Deal Expert
Aug 22, 2011
38211 posts
24392 upvotes
Center of Universe
Which dealership?
[OP]
Deal Addict
User avatar
Aug 3, 2007
3436 posts
280 upvotes
Toronto
vkizzle wrote: Which dealership?
scarsview chrysler in scarborough
Deal Fanatic
Nov 22, 2015
6812 posts
6962 upvotes
Thackers wrote: Thats tied selling and its illegal in Ontario. No legitimate financing company will force a customer to accept a credit insurance or life and disability policy in order to qualify for financing. Its actually in the fine print of the conditional sales agreement.
shoei wrote: dealership said no, its been signed. whats his next course of action? can OMVIC do anything?
booblehead wrote: He should go back and sort out this issue. If dealer refuses, then report to the provincial regulator for further discussion on your next course of action
No. It's definitely legitimate if it's like you say in the OP.

Coercive Tied Selling is when the lending approval is contingent on getting another product. Preferential pricing is NOT an example of tied selling and offering a lower interest rate if you apply for another product is perfectly legal.
Deal Addict
Dec 16, 2008
1087 posts
487 upvotes
Richmond Hill
seems to some extent similar to mortgage insurance where you have less than 20% down.
Deal Fanatic
Jul 26, 2007
6787 posts
4355 upvotes
Toronto
shoei wrote: scarsview chrysler in scarborough
Scums, taking advantage of a situation.
[OP]
Deal Addict
User avatar
Aug 3, 2007
3436 posts
280 upvotes
Toronto
superfresh89 wrote: No. It's definitely legitimate if it's like you say in the OP.

Coercive Tied Selling is when the lending approval is contingent on getting another product. Preferential pricing is NOT an example of tied selling and offering a lower interest rate if you apply for another product is perfectly legal.
But he didnt ask for it and how does he know that they're not just adding it to make an extra 2k? Im sure the bank will agree that once its approved for x% financing, it cant change just because someone adds finance insurance to it.
Deal Expert
User avatar
Jul 30, 2007
32078 posts
19297 upvotes
Toronto
It's legit only if the consumer is aware of it before signing and the offering of this insurance is optional and does not tied into getting the car directly.

If this insurance calls for $200 per month per se, on top of the car payment, will you buy/lease this car from this dealer ? Think about it.
Deal Addict
Jan 1, 2013
2079 posts
1380 upvotes
Durham
The dealership does not provide the insurance, it would be a 3rd party. He should contact the 3rd party insurance provider to cancel the insurance.
Deal Fanatic
Nov 22, 2015
6812 posts
6962 upvotes
shoei wrote: But he didnt ask for it and how does he know that they're not just adding it to make an extra 2k? Im sure the bank will agree that once its approved for x% financing, it cant change just because someone adds finance insurance to it.
He doesn't need to ask for it. It's perfectly normal to offer insurance in exchange for a lower rate.... Try it with any loan from any financial institution.

As long as your friend had the option to accept the loan without insurance at the 16.99%, that's all that matters and the dealer is in the clear. They would have the documents to prove that your friend was indeed approved at the higher rate.
[OP]
Deal Addict
User avatar
Aug 3, 2007
3436 posts
280 upvotes
Toronto
Kkhan15 wrote: The dealership does not provide the insurance, it would be a 3rd party. He should contact the 3rd party insurance provider to cancel the insurance.
but would he get back a refund or will they just cancel it and he still has to pay the $1899
Deal Expert
Aug 22, 2011
38211 posts
24392 upvotes
Center of Universe
What is his rate now?
Deal Addict
User avatar
Mar 24, 2012
2897 posts
1355 upvotes
MARKHAM
With bad credit will be higher interest rate. Shouldn't get a new car in the first place with bad credit. What is the current rate? Your friend could build up his credit score and get another loan to pay it off if he could get a lower rate from a new bank.
Deal Fanatic
User avatar
Sep 9, 2012
5898 posts
5071 upvotes
Oakville, ON
shoei wrote: Hey Guys,

so my cousin just bought a new car and i was reading the bill of sale. He paid $1899 for "health and accident insurance". When i asked him what this is, he said that they included so that he can get a lower interest rate (his credit isnt too good). He said that if he didnt take it, they would have to charge him 16.99% interest for the loan. My question is can they do that? They never mention it anytime during the credit check or sale. I was looking around online and came across Consumer Law Group CP and their site reads "When financing your loan through the dealership, pay attention to the details. Some dealers will include a credit insurance policy in the terms of the loan without telling you. Others will not approve your loan unless you agree to purchase the insurance. Both of these practices violate federal Truth in Lending laws and are considered fraud." Can he go back and have them remove it?
shoei wrote: Hey Guys,

so my cousin just bought a new car and i was reading the bill of sale. He paid $1899 for "health and accident insurance". When i asked him what this is, he said that they included so that he can get a lower interest rate (his credit isnt too good). He said that if he didnt take it, they would have to charge him 16.99% interest for the loan. My question is can they do that? They never mention it anytime during the credit check or sale. I was looking around online and came across Consumer Law Group CP and their site reads "When financing your loan through the dealership, pay attention to the details. Some dealers will include a credit insurance policy in the terms of the loan without telling you. Others will not approve your loan unless you agree to purchase the insurance. Both of these practices violate federal Truth in Lending laws and are considered fraud." Can he go back and have them remove it?
“Truth in Lending” laws Sounds like an American reference and wouldn’t be applicable in Canada. That said there are other Disclosure requirements that must be met depending on the jurisdiction and the lender. And as another poster has pointed out there are “Tied Selling” and similar coercive practices that are regulated, but again it depends on where the justification is and who the lender and insurer are.

Need to know:

— in what Province did the deal get done?
— who is the Lender on the loan paperwork?
— who is the Insurance Company on the paperwork?

And also, getting into the details of the deal:

— is the Insurance being paid for as an addition to the monthly payment? ie is it a monthly premium?
— did the paperwork get done so that it looks like the down payment cash up front paid for the policy? Or did it get structured where the Insurance was rolled into the Loan and the Lender paid the Insurer?

Need above info in order to advise on potential recourse via insurance cancellation and if there’s any case to be made for a regulator to get involved.
Deal Addict
Jan 1, 2013
2079 posts
1380 upvotes
Durham
shoei wrote: but would he get back a refund or will they just cancel it and he still has to pay the $1899
Depends on their policy. He could try and contact them to find out. They might not, might do a retro charging him a month or 2 worth of premium. Hard to say.
[OP]
Deal Addict
User avatar
Aug 3, 2007
3436 posts
280 upvotes
Toronto
CanadianLurker wrote: “Truth in Lending” laws Sounds like an American reference and wouldn’t be applicable in Canada. That said there are other Disclosure requirements that must be met depending on the jurisdiction and the lender. And as another poster has pointed out there are “Tied Selling” and similar coercive practices that are regulated, but again it depends on where the justification is and who the lender and insurer are.

Need to know:

— in what Province did the deal get done?
— who is the Lender on the loan paperwork?
— who is the Insurance Company on the paperwork?

And also, getting into the details of the deal:

— is the Insurance being paid for as an addition to the monthly payment? ie is it a monthly premium?
— did the paperwork get done so that it looks like the down payment cash up front paid for the policy? Or did it get structured where the Insurance was rolled into the Loan and the Lender paid the Insurer?

Need above info in order to advise on potential recourse via insurance cancellation and if there’s any case to be made for a regulator to get involved.
sent you a pm

Top