Arkansas

The relevant statute is Ark. Code Ann. §§23-101-101 et seq. (“AR-CPI”)

A. Actions creditor may take: AR-CPI §23-101-103(8) - Creditor may unilaterally purchase insurance, naming creditor as insured, after the date of the credit transaction, providing coverage against loss, expense or damage to the motor/recreational vehicle as a result of fire, theft, collision or other risks of loss. Such insurance is purchased according to the terms of the credit agreement as a result of debtor's failure to provide required insurance. The costs of this insurance may be charged to debtor by following the notice provisions. A copy of the evidence of insurance or policy must be mailed by first class mail or personally delivered to the last known address of debtor.

B. Notices required: AR-CPI §23-101-113 - In order for creditor to impose charges on debtor for creditor-placed collateral protection insurance, adequate disclosure of the requirement to maintain insurance must be made to debtor by:

(i) setting forth the insurance requirement in the agreement;

(ii) making "reasonable efforts" (see B.(1), below) to notify debtor to maintain insurance and allowing a reasonable time for compliance;

(iii) sending a "final notice" to debtor (see B.(2), below); and

(iv) by sending a copy of the policy or certificate of insurance to debtor. A creditor may not impose charges on debtor for such insurance earlier than 10 days after sending final notice.

(1) Reasonable efforts to notify debtor mean:

(i) a first class mailed notice stating creditor intends to charge debtor for creditor placed insurance coverage on the collateral if debtor fails to provide evidence of property insurance;

(ii) creditor must allow debtor at least 20 days to respond and provide evidence of adequate insurance; and

(iii) final notice is sent by first class mail at least 10 calendar days before the cost of the insurance is charged to debtor. Proof of mailing must be maintained in debtor's file for at least 3 years following termination of the coverage.

(2) The final notice must be in 12-point type and must be in substantially the following form, with modifications to fit the particular transaction:

“FINAL NOTICE

Your credit agreement with us requires you to have property insurance on the collateral until you pay off your loan. You have not given us proof you have insurance on the property. You can ask your insurance company or agent to give us proof of insurance or you can send us proof you have property insurance within 10 calendar days after the date this letter was postmarked. If you do not, we may buy the insurance and charge the cost to you.

You must pay for the property insurance we buy. It will probably cost more than insurance you can buy on your own. The cost of the insurance we buy may be added to your loan balance and we may charge you interest on it. If we do, you will pay interest at the same rate you pay on your loan or the highest rate permitted by law, whichever is lower.

The insurance we buy will pay claims to us (the creditor) for physical damage to your property, at a minimum, the least of the following, determined as of the date of loss:

(a) the cost to repair the collateral less any applicable deductible;

(b) the actual cash value of the collateral, less any applicable deductible;

(c) the net debt, less any applicable deductible. It will not pay any claims made against you [and it may not pay you for any claims you make (delete if limited dual-interest coverage)]. The insurance we buy will not give you any liability insurance coverage and will not meet the requirements of a state's financial responsibility law.

The property coverage we buy will start on the date shown in the policy or certificate, which may go back to the date of the loan or the date your prior coverage stopped. We will cancel the insurance we bought for you and give you a refund or credit of unearned charges if you give us proof you have bought property insurance somewhere else or if you have paid off the loan.”

(3) If a charge is made to debtor for creditor placed insurance that exceeds a 1 year term, creditor must notify debtor, at least annually, that the insurance will be canceled if evidence of acceptable insurance is secured by debtor and provided to creditor.

C. Charges permitted: AR-CPI §23-101-106 -

(1) The premiums charged for creditor-placed collateral insurance must be calculated based on:

(i) An amount not exceeding the net debt even though the coverage may limit the insurer's liability to the net debt, actual cash value or cost of repair; or

(ii) Other premium calculation methods that more closely reflect the exposure of the vehicle and approximate the premium calculation method of the coverage required by the credit agreement.

(2) The amount charged to debtor for creditor-placed insurance may not exceed the premiums charged by the insurer, computed at the time the charge to debtor is determined.

(3) Insurance charges on closed-end credit transactions that create a balloon payment at the end of the credit transaction or extend the credit transaction's maturity date are prohibited, unless specifically disclosed at the time of the origination of the credit agreement and are specifically agreed to by the debtor.

D. Finance charge allowed on creditor's payment: No express statutory provision.

Click here to view relevant Arkansas Code and Regulations.