State RegulationsTX specificDifficulty 2/5
A Texas lender requires a borrower to furnish credit life insurance as security for a loan. Which action may the lender NOT take?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under TIC 1153.003 and 1153.004, together with 28 TAC 3.5001-.5206, a creditor may require credit life insurance as security for a debt, but it may not require the debtor to place that insurance with a particular insurer or through a particular agent or insurer affiliate; the debtor is entitled to choose the insurer that will provide the coverage. Practically, a Texas loan officer who tells a borrower that the loan is approved only if the credit life is bought from the lender's own carrier commits a violation, even though requiring the coverage itself is permitted.
Why the other options are wrong
- B) is permitted because the credit life premium may be financed as part of the indebtedness rather than paid in cash at closing.
- C) is permitted because a creditor may make credit life coverage a condition of, or security for, the loan so long as the required disclosures are given.
- D) is permitted because the creditor may act as the channel through which premiums are collected and remitted to the insurer.
Memory hook
Coverage can be required; the company cannot be dictated.